Artificially limiting house price rises will do more harm than good

Philip Booth writes for City AM

Economists should be humbled by Friedrich Hayek’s famous plea: “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” If only government and central banks – and those who lobby them – realised how little good came from their proposed interventions, and how much harm results.

Last week, the Royal Institute of Chartered Surveyors (RICS) argued that there should be a limit on house price rises of 5 per cent per annum. If rises went beyond this limit, RICS suggested, the authorities should put restrictions on the mortgages banks could offer.

There would be several objections to this policy if it were to be followed in isolation. Sometimes house prices rise for good reason, and limiting price rises will make the market even less able to respond by building new houses and by turning commercial property into residential property. Secondly, if house prices are rising because incomes are rising strongly, or because of a previous recession, the only consequence of