Three things the EC wants the government to do to rein in Britain’s house price boom

Every year, the European Commission offers member countries a few nuggets of advice with the aim of helping them secure long-term stable growth. This year, the commission has the UK’s housing market squarely in its sights.

The risk of the housing market overheating has become a major concern for economists, who have warned that a “correction” could soon be on the way. In London, property prices have risen by 17% annually, far outpacing other areas of the country.

The EC has recommended that the British government should “deploy appropriate measures to respond to the rapid increases in property prices in areas that account for a substantial share of economic growth in the United Kingdom, particularly London”.

Here are their three core recommendations:

1. Raise taxes on higher value homes

“At the moment, increasing property values are not translated into higher property taxes as the property value roll has not been updated since 1991,” the EC’s report says.

The commission recommends reforms to taxation of housing and land, in order to “alleviate distortions in the housing market”.  

2. Build more houses

The document says that the government could do more to stimulate more house building. The lack of supply has been blamed for the rapid rise in prices seen in recent months.

The document said: “Action is needed to further boost the supply of houses - by creating appropriate incentives to raise supply at the local level.

3. Reform Help to Buy

Cameron has already signalled that he is willing to listen to advice from Bank of England Governor Mark Carney over the government’s Help to Buy scheme.

The EC report adds that “the authorities should continue to monitor house prices and mortgage indebtedness and stand ready to deploy appropriate measures, including adjusting the Help to Buy 2 (loan guarantee) scheme, if deemed necessary.”

The EC’s advice is likely to rile the government which is trying to maintain that its economic plan is working.

Commission president Jose Manuel Barroso said: “Growth has returned. Employment is set to rise from this year onwards, albeit slowly, since there is usually a time lag before growth translates into jobs. Financial markets have stabilised. And public finances are today much healthier.

“But the recovery is fragile. More effort will be required to lift Europe firmly out of the crisis and get back to solid growth. With these recommendations, the Commission is pointing the way forward. We believe that member states must now play their part in seeing these reforms through, even if we know that sometimes they are politically unpopular.”

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