housing – the quiet decade speech given by sir jon cunliffe, deputy governor financial stability, member of the financial policy committee, member of the monetary policy committee and member of the prudential regulation committee the law society property section convention, london thursday 20 may 2021 i'm grateful to kristina bluwstein, rand fakhoury, lewis kirkham, lisa panigrahi, sarah venables and matt waldron for their assistance in preparing these remarks. i'd also like to thank richard donnell, robert gardner, geoff meen and christine whitehead for sharing some of their insights with me. all view represented here are my own. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice one of the many unusual features of the covid - driven economic contractions in advanced economies has been the behaviour of housing markets. housing markets typically slow and house prices fall in severe economic contractions. but despite very adverse economic conditions after the initial covid lockdown shock last spring, housing markets have been buoyant in many advanced economies and house prices have been rising. house prices grew by 5. 7 % on average across advanced economies in 2020, the sharpest increase since 20071. of course, what we have experienced over the past 12 months or so has been very different to a ‘ normal ’ business cycle contraction or even to the more extreme contractions that follow financial busts. economic developments have been driven by wholly exogenous health developments and governments have provided massive fiscal support to incomes, employment, the corporate sector and in some cases like the uk, to housing markets. it remains striking however, that following some of the sharpest economic contractions in modern history and amid great uncertainty and indeed, initially fear, about the future, housing markets have been strong. in the uk, over the 12 months to february, house prices have risen by 9. 1 %, the highest growth rate since october 2014. this compares to an average annual growth rate of under 4 % in the 10 years prior to the pandemic. mortgage approvals have averaged around 85, 000 per month and total transactions 111, 000 per month since housing markets opened in june 2020, compared to around 60, 000 and 90, 000 in the prior decade, respectively. the pre - pandemic decade, however, may not be the right comparator. the 10 years following the financial crisis appear unusual

review of the housing tools in the december 2019 financial stability report. tripathy et al, “ macroprudential policy, mortgage cycles and distributional effects : evidence from the uk ” show that constrained banks issued fewer high lti mortgages after the fpc ’ s policy was introduced. they also find evidence supporting the macroprudential benefits of the policy. the local areas with greater exposure to constrained lenders experienced smaller declines in house prices in the aftermath of the eu referendum in june 2016, when house prices fell across most uk regions. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice the distinction between expectations effects and credit constraints matters in another way. to the extent that demand for housing is simply subdued by dampened household expectations about the future, there is no ‘ loss ’ to households. if however, demand for housing is held back by credit constraints, transactions which are desired are ‘ lost ’. one needs to be careful however about assuming that relaxation of credit constraints will lead to all otherwise ‘ lost ’ transactions taking place. the thought experiment i carried out earlier suggested that almost 10 million additional transactions would have occurred from 2007 to 2020 had transactions remained at their - pre financial crisis level. but this assumed that house prices remained at the actual levels we saw over the period. in the absence of increased supply, the evidence suggests that much of the additional demand would have fed into higher prices, raising indebtedness in the short term but eventually choking off the additional demand. i want to look at one other aspect of the market over this quiet decade – distributional impact. distributional effects are not a part of the bank ’ s statutory primary objectives of price and financial stability. this is not because they do not matter. they certainly do, and access to housing is included in the government ’ s economic policy, which the bank has a secondary objective to support16. it is because these are issues primarily for elected authorities rather than technocratic ones, and there are more effective tools to address them. one cannot ignore that housing booms shift wealth towards existing and generally older homeowners and can therefore widen intergenerational inequity. the large increase in house prices in the decade leading up to the financial crisis came with a large expansion in mortgage debt. much of the £664bn increase in household mortgage debt over that period represented borrowing by first time buyers and those moving up the housing