The housing market is facing a ‘worst of all worlds’ situation as rising interest rates and high inflation create the conditions for a housing market freeze unless the government acts quickly, according to the Joseph Rowntree Foundation (JRF).

A new report by JRF describes a market where building stops, transactions stall, cash rich investors swoop in to buy up properties, rents continue to spiral and vulnerable homeowners are stuck in unaffordable homes. The report warns of serious consequences for the economy without seeing a corresponding fall in house prices.

The report goes on to say that measures used for previous housing crashes won’t work because of the particular economic conditions today. It urges the Government to act in a way which will not only get the market moving, but start to put right the problems which are excluding younger generations from owning their own home or finding genuinely affordable homes to rent.

The authors argue that it is possible that we can emerge from this downturn with a fairer, more accessible and more sustainable housing system if different policy levers are used. The implications of the current housing downturn include a collapse in housebuilding, transactions falling, investors swooping in to buy new homes and vulnerable groups struggling with increased housing costs.

The report sets out a plan of action that addresses the immediate impact of the current housing downturn while, at the same time, creating the conditions for a fairer and more economically productive housing system in the long-term.

In the report, the authors set out measures they believe the government should include in the budget on 15^th March. These measures include an increase to the stamp duty land tax, removing tax breaks on short term lets, a levy on council tax on homes in new developments and supporting households by unfreezing the local housing allowance (LHA).

They go on to add that in order to address the structural changes needed for a fairer housing system, the government should replace council tax and stamp duty with an annual property tax, give councils more power to declare housing pressure zones, allowing them to set rules about who can buy properties in particular areas, and finally, and to launch a programme of powerful development corporations to lead a new generation of high quality, mixed tenure developments.

Darren Baxter, principal policy adviser at JRF, says: “We are facing a housing downturn that will put vulnerable families and our country’s economic prospects into serious difficulty. The Government must confront this head on and recognise that past approaches will not work this time.

“Instead, the Government must tackle both the short-term fallout from the housing downturn we find ourselves in and the deeper problems within our housing system. By acting now, and doing both at the same time, Government will ensure we are better placed to come out of this downturn with a fairer, more secure and more affordable housing system in reach.”

Toby Lloyd, one of the report’s authors, says: “House prices have been far too high for decades – pushing homeownership out of reach, distorting our economy, and making it harder to provide affordable homes to rent. As we enter another downturn, we must not waste the opportunity to lower house prices to a much more affordable level – and keep them there.”

The full JRF report can be found here.