Should the Bank of England be jacking up interest rates whenever the housing market starts to run away with itself? That is what the Reserve Bank of New Zealand has in effect just been asked to do by Jacinda Ardern’s government: to take into account a ‘sustainable housing market’ when fixing its monetary policy.
If such a policy were to be adopted in Britain it would have profound consequences for homebuyers and investors – threatening to cut off the supply of cheap loans whenever prices started getting frothy. It is over two decades since the Bank of England was set the task of tracking an inflation target – increasing interest rates to cool an overheating economy and reducing them to warm up a cooling one. Since then, the bank has largely succeeded in keeping inflation – in the shape of the Consumer Prices Index (CPIH) – within a bound of one per cent either side of a central target of 2 per cent (the original target was to keep the Retail Prices Index, RPI, within a bound of one per cent either side of 2.5
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