News House Price Inflation Threatens British Business

British business is becoming increasingly rattled by the high costs of housing and its capacity to undermine the UK’s – and especially London’s – competitive edge, both at home and abroad in the global market, as employees struggle to afford a home.

The Confederation of British Industry (CBI) has raised its concerns as the main political parties begin to gear up for their election battle ahead of the 2015 General Election.

The CBI said that the UK has seen a steady increase in house prices. While housing transactions remain 29% below their 2006 pre-crisis peak, they are “picking up firmly”. London house prices are 25% above their peak in 2008, but prices for the rest of the UK (excluding London) are still 2% below their pre-recession high.

House price inflation is expected to rise to 8.2% this year (from 3.6% in 2013) and 5.1% next year, it added.

“We have to remain alert to the risks posed by unsustainable house price inflation, and the [Bank of England’s] Financial Policy Committee is poised to act when necessary,” said John Cridland, the CBI’s director general.

“Housing has come back under the spotlight as annual house price inflation figures have reached double digits on some measures. While housing transactions are still running almost 30% below their last peak in 2006, they are picking up steadily.

“Although London house prices have risen 25% above the 2008 peak, this has in part been fuelled by foreign cash buyers. Outside London, prices remain around 2% below peak figures with an even greater difference when you move outside the South East.”

Katja Hall, the CBI’s chief policy director, said: “We’re a year away from the general election and politicians must stick with what’s working. That means the new government, of whatever colour, keeping the deficit reduction strategy on track. It must also tackle the UK’s economic challenges and not duck the tough decisions, such as reforming public services.

“Political positioning must not be allowed to stifle investment, whether it’s an unrealistic immigration target, unjustified interventions into specific markets, flirting with leaving the European Union, delaying vital long-term infrastructure projects or restricting labour market flexibility.

“Pre-election pledges should not deter overseas and home-grown investors and entrepreneurs, nor limit a future government’s ability to deliver prosperity in the UK.”

In London, businesses regard high housing costs as the second biggest threat to competitiveness. In the latest CBI KPMG London Business Survey, a quarter of CBI members surveyed said they felt it undermined London’s position as a global player in business.

“The impact of our inability to deliver the number of new homes we need to meet demand, and the bearing this has on affordability, is certainly not lost on CBI members,” said Joe Harley, a senior policy advisor at the CBI, writing for the charity Shelter’s blog yesterday.

“The core of the issue is that skilled workers looking to base themselves in the capital are being deterred by a lack of new homes to buy, and high rent prices, that are pushing up housing costs in and around London.

61% of respondents to the survey said rising house prices and lack of availability have a negative impact on recruitment of entry level staff, with half of respondents saying the same for mid-level managerial employees and nearly a quarter (23%) for senior staff.”

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