House prices

Treasury written question – answered on 14th June 2005.

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Photo of Vincent Cable Vincent Cable Shadow Chancellor of the Exchequer, Liberal Democrat Spokesperson (Treasury)

To ask the Chancellor of the Exchequer what estimate he has made of the long-run equilibrium, or sustainable, house price to earnings ratio; and if he will make a statement.

Photo of John Healey John Healey The Financial Secretary to the Treasury

A discussion regarding the long-run house price to earnings ratio can be found in paragraph A76 of the 2004 pre-Budget report (Cm 6408). This included the statement that,

"The consensus view is that house prices exceed sustainable levels, though there is a wide range of opinion on the extent of disequilibrium. However, the common method of assessing this by comparing the current ratio of house prices to earnings (or some wider measure of income) with its long-run average can be highly misleading. There is no economic law to dictate that this ratio must revert to some constant level over the long term."

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