History suggests Britain's house price surge could threaten hopes of post-Brexit export-powered growth, if finance minister Rishi Sunak uses the housing market to fuel the economy like his predecessors did via BruceReuters
Stoked by his tax break on property purchases and a pandemic-driven rush for larger houses as more people work from home, house prices are rising at the fastest annual rate - at 13.4% in June - since 2004, lender Nationwide says.
Balazs Egert, senior economist from the Organisation for Economic Co-ordination and Development, said this link was similar to "Dutch disease" - when a booming sector, often linked to the discovery of a commodity such as oil, drains resources from other sectors to the detriment of the overall economy.
The reasoning is that rising house prices increase the profitability of the construction and real estate sectors, which attracts labour and capital from higher-productivity industries such as manufacturing. A house price boom also has a tendency to attract foreign investment, boosting the domestic currency and making exports expensive - as happened in the early 2000s.Whether this "double Dutch" dynamic re-emerges in Britain, depends on what happens to the housing market after the pandemic.
There are signs that house prices might rise more than expected again, even after the temporary cuts to property purchase tax, known as stamp duty, expire at the end of September. That temptation should be resisted, said Andrew Sentance, a Bank of England policymaker who is now senior adviser to Cambridge Econometrics, a consultancy.