Bank of England’s Broadbent says the race for space will boost house prices

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Bank of England Deputy Governor Ben Broadbent said working from home will support property prices despite the end of the stamp duty holiday as buyers are more willing to pay for larger homes outside city centres.

Highlighting the millions of office workers now working from home around the world as a result of the pandemic, the economist said part of the “massive rises” in housing activity reflect the temporary reduction in stamp duties.

He added, “Not only that, the proof of that is that you have already seen strong price growth across the developed world that has not seen any changes in taxes.

“And one of the reasons this happens is, again, this kind of structural change related to people who work more from home, and they expect to work from home.

“Space in the home becomes more valuable, and in particular space outside city centers becomes more valuable. We’ve seen a pattern in many countries where prices and activity have been strong outside city centers and vice versa inside.”

Broadbent’s comments came as Halifax reported annual price growth slowed to 7.6% in July, as Chancellor Rishi Sunak’s tax credit became less generous at the start of the month.

The bank does not publish home price forecasts, but experts said the market was also supported by a shortage of homes for sale and lower mortgage costs.

Martin Beck, Chief Economic Adviser at EY Item Club said: “Real estate demand and house price growth may not ease much. The economic consequences of the pandemic appear to have led to an upward shift in housing prices.

Some of these consequences, such as government support for households and ultra-low interest rates, will fade. But others, such as the increased demand for larger real estate in a world where working from home is increasing, could prove to be long lasting.”

The Halifax regional figures confirmed Broadbent’s comments with London showing the weakest annual house price growth of any UK region at just 2.5%. The tepid growth in the capital contrasts with double-digit property growth in the North West, South West, Wales and Yorkshire.

Despite waning momentum in the national market, average prices are still £18,500 higher than they were a year ago at £261,221, defying expectations of a possible crash at the start of the pandemic.

The chancellor sparked a market frenzy last July with a temporary leave of stamp duty on purchases under £500,000, which has propped up the market despite the biggest recession in more than 300 years.

But the exemption was reduced to £250,000 from the start of July before being scrapped entirely at the end of September.

Halifax’s picture of slower growth echoes the Nationwide Index, which found annual price growth fell to 10.5 percent from a 17-year high of 13.4 percent last month.

“We expect the housing market to remain strong over the next few months, with annual price growth continuing to slow, but remaining in positive territory by the end of the year,” said Russell Galley, managing director at Halifax.

Builders also remain under pressure amid rising material costs, adding further fuel to inflation which the Bank of England expects to reach a decade high of 4% by the end of the year.

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