U.K. Property Market at Risk Without Supply Boost, OECD Says

Bloomberg: Britain’s property market may be facing a potential bubble unless the government implements measures to boost the supply of housing for sale and contain price growth, the Organisation for Economic Co-operation and Development said.

“It is urgent to continue to relax the barriers to housing supply to prevent overheating in the property markets,” the Paris-based group said in its semi-annual Economic Outlook.

While the OECD raised its forecasts for U.K. economic growth, it said risks to recovery include “vigorous” house-price increases that could hamper affordability, especially for first-time buyers. The government’s Help to Buy program that aids buyers with smaller deposits has been criticized by the International Monetary Fund and politicians for potentially stoking a property bubble as it boosts demand.

Asking prices in England and Wales rose 4 percent in November from a year earlier to an average 246,237 pounds ($397,000), Rightmove said yesterday. The Royal Institution of Chartered Surveyors said this month its house-price index rose to the highest in more than a decade in October.

The OECD forecast the U.K. economy will grow 1.4 percent this year, 2.4 percent in 2014 and 2.5 percent in 2015. Growth will be supported by an upturn in investment and exports, the organization said.

The Bank of England has pledged to support the economy by keeping its key rate at a record-low 0.5 percent at least until unemployment reaches at least 7 percent. The OECD said monetary policy is expected to start to normalize in the last quarter of 2015, according to inflation and unemployment projections.

“While forward guidance provides assurance that monetary policy will not choke off the recovery with premature policy hikes, risks of rising medium-term inflation need to be closely monitored as the extent of slack in the economy might be less than expected,” the OECD said.

BOE policy maker Martin Weale said last week that U.K. inflation expectations have increased and that if joblessness falls rapidly, officials would have to consider the risk of holding rates too low for too long.

reporter on this story: Eshe Nelson in London