House Price Rise: Another Boom and Bust Coming

The Nationwide building society has reported that the average house price rose by 8.4% in the last year. This news is catastrophic, since it demonstrates that the economic recovery is debt led and founded on inflating assets. Not only are we back to the old idea of boom and bust, but the impact on housing costs, which are among the highest in the industrial world as a percentage of income, will further fuel borrowing and ultimately make the cost of everything we make increase.

Worse, these rising coats are not a reflection of increasing wealth, since no new wealth is created. If new wealth were being created, people would be buying houses with mostly their own money, but, as usual in the boom and bust cycle, they are buying houses with debt. And remember the United Kingdom owes more money collectively than an other country on earth save for the US at 1xGDP, whereas the UK is at a juicy 4xGDP.

Of course this comes as no surprise. Every single Tory led recovery since 1963 has relied on a housing boom and every single one has led to a bust. In recent times Labour fares no better; their bust was the biggest in history. This morning I heard a very distinguished economist say that ‘at the moment’ house prices were not a problem. No, the problem is economists who think this way.

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