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Government and regulators can help housing market wheel to "turn again," says CML

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Published: 16 November 2011 | Author: Bernard Clarke

Market forces and the government can both act as a catalyst to break the stalemate in the mortgage market and help deliver the sustainable provision of housing, CML director general Paul Smee said in his first speech to our annual conference earlier this month.

He argued that better market conditions could be obtained with effort focused on removing obstacles, including negative sentiment, and by making sure we implement the right kind of regulatory reform. But delivering improved conditions would require joined-up thinking by regulators, government and the industry itself.

Self-reinforcing gloom presented a threat, Mr Smee argued, with current sentiment echoing that of the 1970s. But that troubled decade was followed by the economic growth and recovery of the 1980s, "so the wheel will turn," he said.

He also urged caution in measuring housing market success only by the ease of access to home-ownership. A stable market had to embrace all forms of tenure, he argued.

Regulatory reform needed to be proportionate and joined-up if it was to avoid being the biggest obstacle of all to sustainable housing and mortgage markets. 

Regulation was set to become more complex under the "twin peaks" of the Prudential Regulation Authority and the Financial Conduct Authority. And there remained potential for further complexity through the influence of the proposed Financial Policy Committee, part of the remit of which would be to prevent asset bubbles.

He urged regulatory authorities to avoid operating in their own bubbles, arguing that "different parts of the regulatory forest need to be in contact with each other, so that they can assess across the piece the effects of their cumulative demands."

Government could be a catalyst for good, he argued, but also had the potential to be a considerable obstacle if its policies confused or diverted the market, or acted as a brake on action while market participants waited for clarification or legislation. The government was most likely to maximise its impact not as "a designer, driver and implementer of a solution" but as "a catalyst, a prodder and pusher of others."  Mr Smee added: "I have seen this in several markets; I do not think that housing is different."

In the aftermath of the conference, the CML’s sentiments were echoed by the CBI, which called on the government and businesses to adopt a two-pronged approach "to deliver both short- and long-term solutions to the housing crisis." It argued that boosting housing activity could be major game-changer for growth and economic recovery, and that a well-functioning housing market was critical to the long-term health of the economy.

The CBI said short-term recommendations could include introducing a mortgage indemnity scheme to enable first-time buyers to take out low-deposit mortgages. In the longer term, it called for less "regulatory drag" on builders, a "pro-growth" planning system and a review of stamp duty.