House-price boom and bust cycle 'at an end'

The boom and bust cycle that has plagued the housing market for the last 30 years is a thing of the past, a leading economist claims today. His forecast follows the publication yesterday of a house-price survey showing another fall.

The boom and bust cycle that has plagued the housing market for the last 30 years is a thing of the past, a leading economist claims today. His forecast follows the publication yesterday of a house-price survey showing another fall.

Roger Bootle, who predicted the death of inflation five years ago, says Britain has seen the last of extreme gyrations in house prices. Mr Bootle, economic adviser to the accountants Deloitte & Touche, says home owners must get used to annual price rises of between 4 and 5 per cent. This compares with swings of up to 35 per cent a year in the value of the average home since 1970.

Nationwide, Britain's largest building society, reported yesterday that the price of the average home fell 0.2 per cent, or £319, to £81,133 between June and July. The annual rate of inflation also slowed in July to 13.9 per cent, down from 15.1 per cent in June. Nationwide said there was a "significant slowdown" in London where the recent surge in the market has driven prices beyond the reach of many first-time buyers.

David Parry, Nationwide divisional director, said: "Part of the explanation for the weakening is that price rises over the last 12 months were simply not sustainable. But the recent slowdown is unlikely to be the start of a sustained fall."

He said the housing market was "more mature", and with the abolition of Miras tax relief and lower inflation, there was less incentive for home buyers to overstretch themselves.

The survey is the latest to point to an end to the mini-boom that saw price rises hit 17.5 per cent in February. Recent figures from the Bank of England, the Halifax mortgage bank, and the Royal Institution of Chartered Surveyors have pointed to a cooling in the market. The figures will boost hopes that the Bank of England will keep rates on hold when it meets tomorrow.

In his report, Mr Bootle says the abolition of Miras and low inflation has led to a more "sober" attitude. "Rapid rises in house prices - of 20 per cent or more - will now be a thing of the past, and so will the painful downswings when the real price of houses fell," he says. "Because of the emergence of low inflation, the change in the policy regime, and the dramatic change in the tax treatment of home ownership, the era of boom and bust in the housing market may now be over."

Mr Bootle says the recent mini-boom, following the property slump of the early 1990s, has simply brought house prices back into line with the growth in wages.

He believes house prices should in future track inflation, with an extra amount for the shortage of land and the changing population mix. "Taking these factors into account, increases of between 4 and 5 per cent a year should be regarded as the norm," he says.

He says stability in thehousing market is the "last piece of the low-inflation jigsaw to fall into place". And he adds: "After everything we have been through that is a considerable prize to have won."

The biggest annual rise in prices was 35 per cent in 1972 and the steepest fall was 20 per cent in 1990.