News: How to prevent catastrophic house price bubbles

Thu, 31 Mar 11

RICS Economics believes that Sweden has the answer to the problem of how to counter house price bubbles.

Over the past couple of decades the UK housing market has seen sharp swings in prices - creating a house price bubble and an economic banking disaster for the UK. In response, RICS has examined whether there is a different approach the monetary authorities could take to prevent this.

RICS Economics believes the answer could be a new and fundamentally different policy response from Sweden's central bank, Riksbank, which RICS has termed ‘soft signalling‘. This is a concerted strategy to condition public opinion by constantly raising the level of debate and drawing attention to the possible risks of a bubble emerging. RICS believe this could serve as a template for other central banks around the world including the Bank of England. RICS examines the benefits of soft signalling:

  • It is highly flexible; it doesn't require the lead-time of a regulatory response
  • It is low cost; it doesn't need any supervisory backup
  • It is low risk; the authorities can't be blamed for being asleep at the wheel
Commenting, RICS Senior Economist, Josh Miller, said: "The Bank of England should consider adopting the soft signalling approach developed in Sweden to complement the regulatory tool kit. The UK has been a major victim of house price bubbles over the years as people have over-extended themselves to chase rising prices.

“Unless the on-going imbalance between demand and supply of residential property is addressed the market will remain prone to volatility. However, following the lead provided by the Riksbank may help lessen the extent of future fluctuations in the UK."

Source: Mortgageintroducer.com

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