the Daily Mail / Express is that way =>

[oh, god, if I must: ]

Wasn’t it considered unBritish to talk down the economy not too long ago? How things change.

Surely low house prices are a good thing? (As are low prices for everything else)

File under “rubbish”.

“18 out of 24 respondents said waffle”. From that quote (which also appears in the Reuters story), I am unclear whether the survey sample size was 24, or 75% of respondents said waffle. [They really meant 24 "experts"; oh dear]

On the substantive point, new houses are relatively cheap to build and land is expensive. The price of old and new houses is determined by land price. To increase home ownership or rental opportunities, you have two choices: increase incomes or make more land available for homes.

This paper presented to the Royal Economic Society conference at Nottingham Uni in 2006 denied that there was a house price bubble:

THE UK HOUSE PRICE BUBBLE ILLUSION
http://www.nottingham.ac.uk/economics/res/media2006/muellbauer%20et%20al-bubbles.pdf

But that wasn’t what other economists had been saying – try this from 2002:

“CHARLES GOODHART, a former member of the Bank of England’s monetary policy committee [and economics prof at the LSE], warned yesterday that the Bank is failing to take sufficient account of the house price boom in setting interest rates.

“His warning comes amid growing fears among economists that house prices, fuelled by the lowest interest rates for 38 years, are getting out of control. Yesterday, new figures showed that homeowners are borrowing record amounts against the rising value of their homes. . . ”
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2002/04/06/cngood06.xml

There’s an interesting divergence between the trend in house prices 1997-2006 and what happened to the stockmarket prices of equity:

“American house prices rose 124% between 1997 and 2006, while the Standard & Poor’s 500 index fell by 8%; half of US growth in 2005 was house-related. In the UK, house prices increased by 97% in the same period, while the FTSE 100 fell by 10%.” Robert Skidelsky: Keynes – The Return of the Master (Allen Lane 2009) p.5.

Divide the average UK house price by the average earnings and you get the ‘Average House Price/Earnings ratio’. This is what you get for the period 1953 to 2006:
http://www.housepricecrash.co.uk/graphs-average-house-price-to-earnings-ratio.php

Of course, house-price bubbles tend to be very popular among house-owners.

Tricky stuff this, house prices. If the UK builds more houses, prices will fall which is great for people who consider that a house is somewhere that you live. It is bad for people who consider home ownership as an investment.

It is also bad for government. For the middle classes, home ownership is part of the pension package. When savings run out and the care home bills arrive, the old home is a source of income. Local authorities provide debentures for this scenario.

But if house prices fall by 20%, for example, the old home debenture falls by 20%. Old people will run out of money for their care more quickly. Which is when government picks up the tab.