OBR forecasts house price rises
House prices are set to increase by 3.2% this year, 5.2% in 2014 and 7.2% in 2015, according to the Office for Budget Responsibility (OBR), as George Osborne announced a series of measures to get Britain building.
The OBR sharply increased its forecasts, with homes expected to cost 10% more by 2018 than it had previously predicted, and Mr Osborne acknowledged there was a "weakness of supply" in the market.
Prices will continue to rise beyond 2015, with a 4.8% increase predicted for 2016, 3.7% in 2017 and 3.8% in 2018 but Mr Osborne said the OBR's new forecasts still left real house prices 3.1% lower than their 2007 peak.
Setting out plans to boost supply, Mr Osborne announced £1 billion of loans to unblock large housing developments, including in Manchester and Leeds, and raising a borrowing limit for councils to fund new homes.
Mr Osborne also announced that challenger banks Virgin and Aldermore would join the Help to Buy scheme.
The Chancellor said : " Some of the most important infrastructure for British families is housing and we have to confront this simple truth: if we want more people to own a home, we have to build more homes.
"And the OBR is absolutely right today to draw attention to the weakness of housing supply in this country.
"The good news is the latest survey data showed residential construction growing at its fastest rate for a decade. A nd our hard-won planning reforms are delivering a 35% increase in approvals for new homes.
"But we need to do more."
The Housing Revenue Account borrowing limit will be raised by £300 million for councils, which will also be encouraged to sell off their most expensive properties to fund more cost-effective homes.
Mr Osborne said: " Aspiration isn't only for people who can afford their own home. We want to regenerate some of our most run-down urban housing estates.
"Councils will sell off the most expensive social housing, so they can house many more families for the same money.
"We are going to give working people in social housing a priority right to move if they need to for a job.
"Right to Buy applications have doubled under this Government and we'll expand it more."
The OBR noted that the growth in residential investment had left household finances in deficit and the gross debt to income ratio rising.
Its report said that was consistent with low interest rates and schemes such as Help to Buy but "may pose risks to the sustainability of the recovery over the medium term".
Mr Osborne acknowledged that the market should be "functioning" but "stable" and the Bank of England had powers to deal with any houisng bubble.
He said: "Help to aspiring families and building more homes - that's what we stand for. But we must also avoid the mistakes of the last decade.
"We want a responsible recovery.
"That is why I am the first Chancellor to give the Bank of England the responsibility and the power not only to monitor overall debt levels, but to take action to deal with asset bubbles if they threaten our stability.
"We want a functioning, stable housing market.
"The OBR's latest house price forecast, while higher, still has real house prices 3.1% lower in 2018 than at their peak in 2007."
The Goverment's coffers will receive a boost from the buoyant housing market, with revenues from capital gains and stamp taxes forecast to increase.
The OBR said: "Our forecast for stamp duty land tax (SDLT) is much higher than in March. We now expect receipts to almost double over the forecast period, from £8.9 billion in 2013/14 to £16.8 billion in 2018/19."
By 2017/18 higher house prices will contribute around £1.8 billion to the forecast, while a higher volume of transactions will add £1 billion to receipts.
Increasing prices will mean "a greater proportion of transactions" become subject to higher stamp duty bands, the OBR added.
Mike Jones, chairman of the Local Government Association's environment and housing board, said the measures would "provide a glimmer of hope" to people facing lengthy waits for a council house.
"Government has today acknowledged councils' argument that the current restrictions on our ability to invest in new housing are not fit for purpose," he said.
"This is an important first step towards untying the hands of local authorities to build the new social housing which millions on housing waiting lists desperately need."
Homeless charity Shelter's chief executive, Campbell Robb, warned: "Selling off social homes in expensive parts of the country risks stripping away affordable housing from the places where it's needed most.
"It could mean essential workers finding themselves priced miles out of our cities, as finding a place to live on a cleaner's, nurse's or teacher's wage becomes more difficult than ever.
"If we want to safeguard the recovery, we need to make sure that the people who keep our economy going will be able to find an affordable place to live.
"We need to see bolder ideas to get more affordable homes built, not more piecemeal policies."
Copyright (c) Press Association Ltd. 2013, All Rights Reserved.