Vince Cable warns housing is ‘unaffordable’ for middle classes

Business secretary Vince Cable has admitted home ownership has now become “unaffordable” to people on middle incomes.

Cable has warned that the bubble developing in the domestic housing market could be more serious than during the last property crash.

Amid growing tension between the Conservatives and Liberal Democrats over rising house prices, the Business Secretary told the Evening Standard’s sister title The Independent: “The fundamental problem is a chronic imbalance between supply and demand. A recovering mortgage market is just fuelling demand again.”

Mr Cable warned: “A family on average income is nowhere near able to afford a house at the average price. Property has become much more unaffordable for people on middle incomes.”

The Lib Dem minister said that, in the mid-1990s, the average house price was three times average earnings. Today, at roughly the same stage of the economic cycle, the ratio is about 5.5. It rose to more than six before the crash of 2007.

The Lib Dem minister hit back at comments by Kris Hopkins, the Conservative Housing Minister, who told the BBC’s Newsnight programme that rising house prices are a good thing.

Mr Cable said: “I do not agree with Kris Hopkins that rising house prices are a good thing. If you are an owner-occupier who has paid off your mortgage, it is an increase in your paper or real wealth. But if you are a young family trying to get into the housing market and it is unaffordable, it is an extremely bad thing".

Although Tory ministers will be infuriated by Mr Cable’s comments, his warning will be taken seriously. As the Lib Dems’ economic spokesman during the previous Labour Government, Mr Cable was dubbed “the sage of the credit crunch” after warning that the housing market would collapse, calling for the nationalisation of Northern Rock and predicting the banking crisis.

The Business Secretary believes the country now faces a different – and possibly even worse – housing market crisis. Last time, the problem was mortgage lenders being over-exposed. This time, he said, the “real issue” is the need for more housebuilding.

Mr Cable added: “We have taken some very good measures in government like allowing those areas with severe need for additional housing to increase borrowing against their assets to build new houses. We’ve made financial help available to small businesses in the building trade to increase competition and introduced one for one replacement of council housing every time one is sold. The number of council houses actually fell under Labour. But more needs to be done. We must build many more houses - that and only that is the solution to our housing problem.”