Housing market sustainable says think-tank – and here's why

Posted: 28 Nov 2006 10:57:35 GMT

A leading economic think-tank has responded to a report warning of imminent disaster for the housing market "bubble", saying that a sharp price correction is "very unlikely".

A leading economic think-tank has responded to a report warning of imminent disaster for the housing market "bubble", saying that a sharp price correction is "very unlikely".

Morgan Stanley economist David Miles predicted last week that the UK property market had been overheated by speculation and that it would soon fall to earth.

In response, the Centre for Economics and Business Research (Cebr) has produced a list of the top five reasons why current house prices are sustainable over the long-term.

"The UK does not have a large enough stock of houses," said Cebr senior economist Jonathon Said, listing the single biggest factor influencing prices.

"Government planning restrictions and schemes such as key worker housing prevent the construction sector from fully responding to the house market's price signal."

Other key issues include a stable population, and greater numbers of people living in single-member households rather than family homes.

The cost of borrowing also remains historically low, meaning that large loans are affordable when calculated as a monthly payment against income.

"As long as supply continues to fail to react to the burgeoning demand for housing, it is very unlikely that house prices will crash," concluded Mr Said.

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