Over the past couple of decades the UK housing market has seen sharp swings in prices - creating house price ‘bubbles' and adding to the volatility of the economic cycle. In response, RICS has examined whether there is a different approach the monetary authorities could take to prevent this.
RICS Economics believes the answer could be a new and fundamentally different policy response from Sweden's central bank, Riksbank, which RICS has termed ‘soft signalling‘. This is a concerted strategy to condition public opinion by constantly raising the level of debate and drawing attention to the possible risks of a bubble emerging. RICS believe this could serve as a template for other central banks around the world including the Bank of England.
RICS examines the benefits of soft signalling:
- It is highly flexible; it doesn't require the lead-time of a regulatory response
- It is low cost; it doesn't need any supervisory backup
- It is low risk; the authorities can't be blamed for being asleep at the wheel
“Unless the on-going imbalance between demand and supply of residential property is addressed the market will remain prone to volatility. However, following the lead provided by the Riksbank may help lessen the extent of future fluctuations in the UK."
