Advocate: Should the government to set a 5 per cent cap on house price rises?

While I fully accept the difficulty in imagining how it could ever be achieved, I actually like the idea.

We have a society on the brink of collapsing under the infrastructure pressures that result from an imbalance of wealth – so many issues are direct results of the consequences of poverty.

Sadly post-RDR very few advisers can do much about it but I wish we could and I wish we would.

Too much power and wealth is controlled by the property owning class at a time when we have a growing housing supply problem. The gradual reduction of social housing and a plethora of artificial stimuli for the private housing market has fuelled a crisis that could now explode in the faces of the next generation. Once again the baby-boomers are sitting pretty.

But how could we cap house price inflation at 5 per cent?

Well, if it was simply a ‘desired outcome’ and therefore controlled by the Bank of England it could actually be simply a series of targeted fiscal nuances and tweaks based on economic forecasting – similar to the control of price inflation.

An indirect control of house price inflation could be achieved through a policy of more social housing. specifically built on brownfield sites – expensive, but if it alleviated the deplorable growth in homelessness and the seemingly endless increase in so called ‘slum landlords’, let alone the longer term financial consequences on health, crime and welfare of both, it may just pay for itself.

A more radical approach could be through taxation, which I favour. The introduction of a mansion tax and the removal of CGT exemption for owner-occupied properties could be offset by an exemption allowance per individual and a much higher rate of tax on profits above a threshold. This could indirectly limit house price inflation and in a way more acceptable to the political right because it allows for the free movement of the market, albeit a controlled one.

No – Scott Gallacher, chartered financial planner at Rowley Turton

I doubt I was the only one recalling Gordon Brown’s famous ‘end to boom and bust’ speeches when I first heard of the Royal Institution of Chartered Surveyors’ proposal to cap house price growth at 5 per cent per annum

The government’s history of trying to control or fix prices is hardly an overwhelming success, whether it is wage controls in the 70s or more recently the Bank of England’s 2 per cent inflation target.

I doubt any government would genuinely restrict people’s borrowing capacity or limit property prices in the run up to the election, or shortly thereafter. No one wants to be a party pooper; consequently half the time the government would not be following this policy.

Even if you accept the 5 per cent per annum figure as reasonable (and even RICS is not wedded to that figure) then when do you start measuring?

I would argue that houses today still remain 20-25 per cent overvalued compared to wages so maybe we would be better off having no house price inflation at all until wages ‘catch up’ rather than 5 per cent per annum from day one.

Going back to Gordon Brown, you may recall that when it became clear he was going to break his famous golden borrowing rules he simply amended the timescale he was looking at and to some extent the BoE has done the same with its inflation target.

Finally if house prices are flat one year does this mean the government would relax borrowing rules to boost the market by 10 per cent only to tighten them the next year? Rather than controlling or smoothing the housing market this proposal would lead to even greater booms and busts in the house market, with people either desperate to buy houses before the rules change against them or waiting until the governments ‘lets’ them borrow.