This is really interesting from Economics Observatory. It suggests this could be at the heart of the UK’s economic dysfunction rather than simply being a symptom of other structural problems:
Capital allocation
First, elevated house prices might redirect capital investment towards property (typically regarded as low-productivity assets), diminishing available capital for labour in productive and innovative sectors.
At the same time, increased house prices can potentially enhance overall economic productivity by empowering potential entrepreneurs (with home ownership), enabling them to start new businesses. These ventures themselves often direct investments away from property and into other activities, fostering innovation in product development.
Mobility of workers
Second, elevated house prices and rents can potentially compel lower-income families to relocate further away from areas with significant job concentrations. This can weaken the effectiveness of labour market matching (getting the right people into the right jobs). This displacement may result in reduced labour productivity.
Formation and use of human capital
Finally, rising housing costs can divert households’ funds away from investment in education and training, both of which are key determinants of labour productivity. In addition, rising house prices (and growth in housing wealth due to higher house prices) can reduce labour participation and hours of work for homeowners (especially for older women and younger partnered people). This can lead to a reduction in labour supply and slower productivity growth (Atalay et al, 2016).
https://www.economicsobservatory.com/how-might-house-prices-affect-workers-productivity-in-oecd-economies
Mark Carrigan 