Treasury 'buzzing' with housing talk as ministers do their single currency homework
Britain's housing market is a "key determinant" of the decision on whether to join the euro.

The Treasury's much-vaunted 18 volumes of analysis of the UK economy include one – volume four – entitled Housing, Consumption and Economic & Monetary Union.

The 107-page tome will be published on 9 June alongside the Treasury's verdict on euro entry. It concludes that the volatility of the UK housing market would present a significant problem if the country were to enter the single currency.

House prices have grown up to 30% in the past 12 months and the Treasury fears that this problem would get worse if the European Central Bank, rather than the Bank of England, were setting interest rates.

As chancellor Gordon Brown pointed out in his last Budget, UK homeowners are exposed to fluctuations in interest rates because hardly any have long-term, fixed-rate mortgages.

This was the rationale behind the Treasury's appointment of Professor David Miles from Imperial college to investigate why the take-up of fixed-interest mortgages – very popular in the USA and mainland Europe – was so low in the UK. Brown also announced studies on housing supply and construction recruitment in April's Budget.

Peter Williams, deputy director general of the Council of Mortgage Lenders, said these moves and the volume of economic analysis proved the Treasury was concerned about housing. But he was concerned that the significance of social housing – especially through the Communities Plan – was not fully appreciated. "Housing is enjoying a significance in Treasury thinking that it has not enjoyed for years," he said. "It's time people in social housing woke up to the place of housing at the top table. It is a key determinant of the viability of the UK economy and its entry or not into the euro.

"There has been so much Treasury stuff on housing recently – it is buzzing. This is operating at a level that people in social housing don't necessarily think of and it is good to take in the bigger picture. Alongside the bigger arguments about convergence and integration is a less publicised, but no less important, debate about housing."

Williams added that the Treasury was also concerned about the impact of changes in property values on savings and pensions.

Source

Housing Today