Wednesday 25 March 2009

Wishing the bubble back

In the middle of a crash apparently caused in large part by debt-fuelled housing bubbles on both sides of the Atlantic, a lot of people are hoping that housing markets will recover and go roaring ahead again, just like the good old days. Duncan's Economic Blog succinctly sets out some reasons why these people should be careful what they wish for:

I believe there are four primary reasons why high, and fast rising, house prices are a bad thing.

Inequality

High house prices cause inequality. They redistribute wealth from non- home owners to home owners. Broadly put, from the poorer to the better off and from the young to the old...



Debt

Rising house prices encourage people to take on even more debt, both in the form of mortgages and in the form of ‘home equity withdrawal’ loans...

It doesn’t make the UK better off

The country as a whole does not benefit from higher house prices. We can’t base an economy on people selling houses to each other at ever higher prices. If someone buys a house because they want to live there, then great. If someone buys a house because they think they can sell it on at a higher prices then this is a simple pyramid scheme.

Competitiveness

Higher house prices mean that British workers need higher wages just to afford to live/rent somewhere. This damages Britain’s ability to be able to compete with other countries.


You can read the whole thing here (originally stumbled across in Stumbling and Mumbling, the blog which occasionally encourages my delusion of having some idea of what's going on with this economy thing). Understanding the problem is, after all, a more constructive first step than smashing Sir Fred Goodwin's windows - the man's an expensive waste of space, but it's the system which paid him to be reckless with other people's money which needs to be smashed, not the glass in the mansion he blagged for himself.

0 comments: