Lord Adair Turner
Lord Adair TurnerReuters

Lord Adair Turner, the ex-chairman of the Financial Services Authority, warned Britain's booming property market would lead the country to another financial crisis in the absence of an ample supply of homes.

"We have made it incredibly favourable to buy houses," Lord Turner told The Telegraph.

"The supply issue is very important and we've got to increase the supply of housing because otherwise we are just piling up very strong incentives to buy housing, very strong incentives to borrow money to buy housing but against a fixed supply."

"If you do that the only thing that can give is the price," he added.

Lord Tuner noted that mortgage and commercial property lending played a major role in almost all financial crises in advanced economies. While investment in real estate is an inevitable part of modern economy, the excessive investment in the sector has increased the risk of boom and bust, according to him.

UK has been experiencing steady increase in home prices, especially in the capital city of London due to its safe-haven status. In addition, government schemes such as Funding for Lending and Help to Buy helped better availability and affordability of mortgages.

Nevertheless, the country has been lacking enough supply of homes to meet the rising demand. Industry experts and officials have warned that the country will experience a housing bubble in the absence of enough home supply.

Returning to Crisis

Telegraph reported that Lord Turner was "worried" that the UK was "developing a recovery which is simply returning to the very issues that led us to this problem in the first place".

He noted that the country needs reforms to curb credit fuelled growth to prevent a repeat of the 2008 financial crisis.

"The policies followed before the financial crisis failed to prevent it," he said.

In the aftermath of the financial crisis, the country introduced reforms including higher capital and liquidity standards, more effective bank resolution procedures: measures to address risks in derivatives trading: and structural reforms such as ring fencing.

"While these reforms are valuable, they will be insufficient to ensure a more stable financial system and economy over the long term," he added.

"We need to recognise and contain the potential for instability which [reliance on in real estate lending] unleashes."

"Policies relating to the supply of new real estate, and to its taxation will likely prove as important to financial and macroeconomic stability as reforms specifically focused on the financial system itself."