Aug 06 2007
Rising House prices - too many mortgages rather than too few homes
The government and its propoganda arm the BBC is busy again??telling us of a forecast??that house prices will rise in the UK by 40% over the next five years unless we build more homes. They never mention mortgages and the supply of finance.
They should look at what is happening in the USA. House prices have been falling. It’s not because suddenly there are fewer people in the USA needing a home. It is because the banks have decided to make it more difficult to obtain a mortgage, following the clear signal of higher interest rates from the Central Bank showing they want to make it more difficult to borrow.
The main reason house prices have risen so rapidly in the last five years in the UK is we have lived through a period of easy credit. The Central Bank kept interest rates too low. The government went on its own borrowing spree, pumping money into the economy. Practically all assets went up in price.
It is curious we do not hear items on the BBC or from the government telling us there is a shortage of office buildings in London, yet London offices have been going up in price more quickly than the national average house price increase. Share prices have soared, huge quantities of government and other debt has been sold to savers. It is all evidence of easy money.
??If the government wants house prices to go up less quickly, or if it wants them to fall, all it has to do is tell the Bank of England to get tougher on inflaiton. A period of higher interest rates for longer could stop house inflation in its tracks. A period of even higher interest rates??could bring house prices down.
Homes are not like most goods or commodities, where the price is determined by supply and demand for new product. Most homes sold in the UK are second hand homes. Most people obtain a home because someone else vacates a home, through death, or marriage or wish to live somewhere else.
The price of oil has gone up rapidly recently. This does show that there is more potential demand for oil than supply. You can tackle the problem in three ways. You can try to find more oil, or you can?? try to find alternatives to oil, or for any given individual or company you can spend more of your income on buying oil.
If you are worried about the supply /demand balance for houses, and do not accept that prices are mainly determined by the availability of mortgages, then you could also look at limiting the numbers of people allowed into Britain for permanent settlement. On the government’s own figures the arrival of new migrants constitutes an important part of the increased demand for homes.That would be a quicker way of bring supply and demand into better balance, than increasing construction in several years time.
John Redwood has been the Member of Parliament for Wokingham since 1987. First attending Kent College, Canterbury, he graduated from Magdalen College...
They also never mention the rising number of people looking to buy housing. Given that England’s population surpassed 50M under Blair and is predicted to rise by 6M in the next 25 years I’m slightly bemused at the fact that you haven’t mentioned it.
On its own England has the World’s 24th highest population with a population density of 383 people per square kilometre compared a European average of 117. And the south east of England now has a population density higher than Bangladesh. Sustainability. Sustainability. Sustainability.
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At last, someone said it. There is too much money chasing our housing stock. Previously you have mentioned immigration and have claimed (correctly) that UK interest rates have been higher than the USA, EU and Japan as if it was a bad thing.
You talk about inflation, how can there be inflation? The likes of Tesco squeezing suppliers and the fact we import pretty much everything from nations with weakening currencies mean all the inflation from all the extra money we are printing goes into our housing stock.
Yet middle-England seems to think that hyper-inflation of our housing stock is a good thing.
I don’t, I think it’s a disater!
Reply: I agree we need the higher interest rates because we have inflaiton of asset values and too much borrowing. If the government did not borrow so much and obtained better value for the money it did need to spend we would not need interest rates at a higher level to control inflation.
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Thanks for the reply, I always appreciate the replies. As for ‘value for money’, you are a dying breed. Even Tory councils now employ economically illiterate people to lecture us as to why we must buy ‘Fairtrade’ coffee.
How is the UK organising a boycott of the majority of the worlds coffee growers ‘fair’? This country has gone mad, stark raving mad. The very people that work in your local councils’s ‘Sustainability Team’, promoting ‘Fairtrade’ coffee, even think we that can all get richer by borrowing lots of money and selling our houses to each other.
Is this a sustainable model of ecomonics?
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