House Prices (Hansard, 10 March 1978)

§ Mr. Shore

It is the policy of the Government to make it easier for people who wish to do so to become home owners without facing intolerable financial burdens.

Following the unprecedented increase in house prices in 1972 and 1973 house prices have risen during the past four years at an average of about 8 per cent. a year. In the last few months, however, house prices particularly in some areas have begun to accelerate.

My first concern is to see that house prices do not continue to rise at such a rate that they impose heavy burdens on first-time home buyers and push home ownership beyond the reach of many young couples. Some increase in house prices is necessary and desirable to generate an adequate level of house-building. But if the current rate of increase which is occurring in some parts of the country were to continue and spread, first-time home buyers would be hard hit. And the housebuilding industry would suffer too, as eventually there would be a slump in demand for new houses. This happened in 1974 following the 1972–3 house price explosion.

I know that the Building Societies Association—BSA—shares my concern that house prices should not continue to accelerate. The Council of the BSA has considered the present situation in the light of a thorough examination by the Joint Advisory Committee on Mortgage Finance (JAC) on which both the Government and the building societies are represented.

I believe, and the BSA concurs, that it is now necessary for there to be some moderation in lending to ease the upward pressure on house prices. Consequently the Council of the BSA is advising its members that the original guideline of £720 million a month for the first half of this year is being revised to £685 million a month. In order to achieve this, lending will be reduced to a level of £650 million a month from April onwards, to compensate for a higher level of lending in the preceding months.

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This would still produce a high average monthly level of lending in the first half of 1978 compared with 1977 as a whole when the average monthly level of lending was £615 million. Building societies will continue to give preference to first-time purchasers and the buyers of new dwellings. The JAC will continue to monitor prices closely and the agreed level of lending will be adjusted as necessary.

Some finance for house purchase is provided by life insurance offices and the banks. The life offices associations have agreed to consider with their members what steps they could take to ensure that their lending does not frustrate the purpose of the limitation by building societies. The Bank of England are seek-

AVERAGE ANNUAL INCREASE IN PERIOD
		Consumer prices (1)	Wholesale prices (2)	Implied gross domestic (3) product deflator
		1960–76 Per cent.	1960–77 Per cent.	1960–76 Per cent.	1960–77 Per cent.	1960–76 Per cent.
Canada	…	4.2(4)	4.6	5.2(4)	5.3(5)	4.8(4)
France	…	5.8	6.0	4.8(6)	4.9(6)	6.0
Germany	…	3.9	3.9	3.0	3.0	4.5
Italy	…	7.0	7.6(5)	7.2	7.8	7.6
Japan	…	7.8	7.8	4.0	3.9	6.6
United Kingdom	…	7.5	8.0	7.1(7)	7.7(7)	7.6
United States	…	4.2	4.3	4.2	4.3	4.2
Sources:
(1) OECD Main Economic Indicators.
(2) International Financial Statistics.
(3) National Accounts ESA Aggregates 1960–76.
Notes:
(4) 1960–75.
(5) Based on first 11 months of 1977.
(6) Based on prices of industrial goods, including tax.
(7) Based on output prices of home sales of all manufactured products.

Only the implied gross domestic product deflator is obtained from statistics which have been adjusted to international definitions. The methods and definitions used to calculate wholesale price indices vary widely from country to country and inter-country comparisons should not be made on the basis of these indices. While the consumer price indices are also compiled on a national basis they are suitable for inter-country comparisons.

There are various factors which influence movements in prices and it would be a major exercise to attempt to identify the reasons for differences in the movements in the three series within and between countries. However, general factors which lead to different movements among the three indicators for any one country include differences in coverage, in timing, 816W ing an equivalent assurance from the principal banks, especially as regards extending the provision of bridging finance.