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One curious thing about Britain’s housing market is that it’s not really a market at all [Image: Dominic Lipinski/PA].

Here’s another perspective on the UK housing crisis, from Larry Elliott in The Guardian. But is it any good?

The main premise seems to be at the end – that productivity needs to rise in order to stoke a rise in wages.

But we have a Conservative government that is determined to cut wages – to keep working people down, in the service of the idle elite class that Theresa May epitomises.

So, is this theory realistic?

With ownership plummeting, rents unaffordable and homelessness on the rise, action is needed to stave off a crash.

One curious thing about the housing market is that it is not really a market at all, at least not in the classic sense. As every student learns on their first day of economics, markets work through the law of supply and demand. Low prices act as a disincentive to produce but as prices rise so supply increases. Conversely, demand falls as prices rise because buyers consider products too expensive. There is a point where there is neither too little nor too much supply, but just the right amount to satisfy demand.

The world of real estate, however, is a million miles away from the textbooks… Homeowners hold on to their homes because they assume that their property will continue to go up in price. Nor do rising prices dampen demand. Rather, people think they had better scramble on to the ladder before it is too late.

The alternative to yet another boom-bust is to try to construct a saner housing market. There are five steps to this. The first is to stop doing more harm through counter-productive policies such as help to buy. The second is to change the tax system, starting with council tax reform and action to prevent land hoarding. The third is to increase supply, and the housing expert Kate Barker has suggested ways the government could do so, such as identifying large sites abutting urban areas and acquiring them at a modest premium to the value of their existing use.

Step four is for the Bank of England to adopt a kid-glove approach to raising interest rates. The idea is to engineer a gradual fall in real – inflation-adjusted – house prices, not a recession that leads to a sharp increase in unemployment.

Step five is to find a way of boosting wages, because there are two ways in which houses can become more affordable. Earnings can rise or house prices can fall. The housing market will only become less dysfunctional when Britain becomes more productive.

Source: The UK housing market’s perfect storm, and five steps to avoid it | Larry Elliott | Business | The Guardian


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