Abstract/Summary

From the mid-1950s to the early 1980s the Treasury and Bank of England successfully advocated a policy of restricting both private and public sector house-building, as a key but covert instrument of their wider ‘stop-go’ macroeconomic policy framework. While the intensity of restrictions varied over the economic cycle, private house-building was restricted (through limiting mortgage availability) for almost all this period. This was achieved by keeping building society interest rates low relative to other interest rates and thus starving the building society movement of mortgage funds. Mortgage restriction was never publicly discussed and sometimes operated alongside ambitious housing targets and well-publicised policy initiatives to boost housing demand. This paper outlines the evolution of house-building restriction, together with its impacts on the housing sector and the wider economy. We review the evolution of the policy framework and its consequences, compare the level and stability of British house-building during this period - historically and relative to other countries, and undertake time-series econometric analysis of its impacts on both house-building and house prices. Finally, implications for debates regarding stop-go policy, Britain’s housing problem, and the distributional consequences of government macroeconomic policy are discussed.