Much
nonsense has been written about this. The management of price-levels
generally is beyond the power of a Liberal Socialist Government. About 800,000 house-sales are
completed each year, with only perhaps 150,000 of them being newly-built
houses. Most are existing houses, traded up and down in the ordinary way.
Even if the new-house supply were increased by 50,000 p.a. that would hardly
shift the price-levels, in a market of 800,000.
Rising house-values are not, at base, an insubstantial “bubble about to
burst”, and the Meeja sometimes claim. To understand the way in which
capital wealth is accumulating among the upper two-thirds of society, should
read Dane Clouston, the radical advocate of capital redistribution. Parents
are investing more and more in securing for their children a privileged
position on the housing ladder, and so house-prices escalate. And the
wealthy put very large sums of capital indeed, into securing for their
children a high place in the system. House prices no
longer reflect simply the purchaser’s “income capacity” to buy – there is a
great deal of accumulated capital deployed, in every transaction.
Also, the UK has experienced a once-for-all shift from its
conventionally “high” interest rates to the low rates which characterise
both the continent of
Europe and the Americas.
This shift will not be reversed, and therefore house-values are likely to be
maintained.
Other factors bolster the UK house-prices, certainly at its upper end.
Nowhere is the Ol’ Devil Class more active than in the housing market. And
although the supportive influence of the building society movement is far
less than of old, the housing market remains extremely attractive to
financiers, who value their place in the strong UK mortgage market.
The
simple volume of new housebuilding is therefore only a minor factor in determining
house-prices. Conventional economic analysis is not a good guide to the future
operation of the market – as a myriad of inaccurate past predictions
testify. It would be wrong to expect a mere 50,000 extra new houses per
year to make any significant difference to price levels generally.
Having said that, I do consider that, at the very bottom of the market, a
significant increase in supply (say, 100,000 house a year, sustained for
five or more years) would begin to moderate house-prices. At the very
bottom of the market, for first-time buyers and even for those “trading
down” in retirement, I think that prices would respond, if local markets
were oversupplied.
PS
I should not leave this subject without trying to explode the myth that house-prices
are driven up by increasing land-prices. That is pure, unadulterated
nonsense. The land value reflects the