The UK housing market: Anatomy of a house price boom

The paper summarises UK house price developments since the mid-1990s and reviews evidence of demand and supply factors that have contributed to the house price boom. Strong growth in UK house prices since 1997 is partly explained by rising average incomes and falls in mortgage interest rates. Non-price loosening of mortgage credit conditions appears to have further contributed to rapid lending growth. Despite strong population growth and even faster household formation rates, increases in housing supply managed to keep pace with greater demand for housing units until 2000, but structural supply weaknesses became more apparent thereafter. Current government targets for increased long-term housing supply appear challenging, necessary though they are. A downward adjustment of house prices may continue, as in late 2008 house prices are still above levels that could be judged consistent with housing market equilibrium, however defined.