Gone are the days when the governor of the Bank of England was a one-club golfer, equipped only with interest rate. Mark Carney has a full set of custom-made gear to prevent the UK from veering off the fairway and into the deep rough.
That's just as well because the latest official house price figures are troubling. The cost of a property is rising at more than 9% in the UK, but at double that rate in London. The consultants PwC predict that by the end of 2014 the cost of the average London house will be above £500,000. The Adam Smith Institute says the London property market is an unaffordable disaster for young people.
Unfortunately, the ASI solution to the problem – easing Britain's planning laws – won't do much good in the short term. Building more houses is one way of bringing supply into balance with demand, which is why Boris Johnson is championing the idea of shifting London's centre of gravity east, where there is land available for house building. But this will take years not months.
For now, Carney can only tackle the demand side of the equation. The last thing he wants to do is to smack the entire economy with higher interest rates in order to tackle a localised housing bubble. In most of the UK, prevailing house prices are below their pre-recession peak.
Contrary to popular belief, the government's Help to Buy scheme is not a factor in the London boom. But Carney would send out a strong signal if he were to recommend – now – that the limit for HTB should be halved or ended altogether. The Bank is also bringing in affordability tests that will oblige lenders to test whether borrowers could cope with significant increases in mortgage rates. Capping loan to value ratios would also help keep prices in check. Clearly though, it is time Carney stopped swishing his new clubs around on the driving range.
Time to try them out on the course, governor.
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