Financial Stability Paper No. 49
By Martina Fazio and Gary Harper
The Covid-19 Pandemic, and measures put in place to contain it, brought about an unprecedented contraction in economic activity. Despite this, housing prices in a range of advanced economics continued to grow, and growth in the UK reached its highest rate in over a decade. In part, this can be explained by measures put in place to support the broader economy, including a loosening of the monetary policy environment, broader fiscal measures such as the Coronavirus Job Retention Scheme, and direct support to the housing market by a temporary reduction in Stamp Duty Land Tax. But standard macroeconomic factors do not explain the full extent of the growth observed in recent years, and there is some evidence that households’ preferences for different types of housing and locations changed during the pandemic. We have analysed the effect of shifts in households’ preferences and found that, in total, they are associated with just under 50% of the total growth in housing prices observed since the start of the pandemic. But their impact has varied over time, for instance while households consistently placed higher value on houses relative to flats, the increased valuation of housing outside of London was more short-lived.