The Economist: "Taking the heat out: Increases in interest rates will at best slow Britain’s housing boom"

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"... What monetary policy cannot do is fix the deeper problem—which is that houses will remain least affordable in the places where most jobs are being created. Price increases in the capital are making lots of money for construction firms who own land: Berkeley Homes, a London-focused builder, increased its profits by 40% in the year to April. But they are not stimulating much supply, largely because planning restrictions are so tight.

"In St Albans, a southern commuter town, the price of greenfield land with planning permission has already eclipsed its heady pre-recession levels. Yet where there is actually plenty of land with permission to build, for example in the Thames estuary, house prices remain too low to entice builders.

George Osborne, the chancellor of the exchequer, at least understands the problem. 'British people want our homes to go up in value, but also remain affordable,' he said in a recent speech. Yet he has offered no new solution to London's unaffordable housing. The green belt surrounding the capital, on which building is banned, will remain intact. House-building will therefore be limited to former industrial sites which are expensive to build on.

"As a senior civil servant notes, Britain’s housing market is getting back to its pre-recession normal state: broken."