Ways of pricking the house price bubble

House prices in the UK are rising and the rise seems to be accelerating – at least until the latest month (August). They are now growing at an annualised rate of nearly 4%. This is the fastest rate for three years (see chart below: click here for a PowerPoint of the chart).

This may be worrying for Mark Carney, the Governor of the Bank of England, who is committed to avoiding a new house price bubble. The problem is that, under the recently issued forward guidance, the Bank of England is set to retain the current historically low Bank rate of 0.5% until unemployment has fallen to 7%. But that could be some time – probably around two years.

So what can the Bank do in the meantime and what will be the consequences?

The following article from The Guardian looks at the options.


How can the Bank of England prick the house price bubble? The Guardian, Patrick Collinson and Heather Stewart (30/8/13)


Links to house price data The Economics Network, John Sloman


  1. What constitutes a housing price boom? Is the UK currently experiencing such a boom?
  2. What factors have led to the recent house price rises? Have these factors affected the demand or supply of houses (or both)?
  3. Who gains and who loses from rising house prices?
  4. Explain the policy adopted in New Zealand to curb house price inflation.
  5. Consider the merits of this option?
  6. Could borrowers find ways around this measure?
  7. Are there any other options open to the Bank of England?