The British Obsession with house prices and home ownership has lead to a boom-and-bust cycle and economic instability. This has been accelerated by easy credit. We need to return to conservative values of saving and not buying things on credit, argues Christopher Wheeler.
In the United Kingdom one of the prime national obsessions is house prices. When they go up, the media, the people and political parties regard this as proof that everything is right with the world. But when house prices fall, or even just stabilise, the very same people regard it as the equivalent of the sky falling in. These extreme reactions have led to hysteria and a grand obsession about the price of houses in Britain and what it says about the economy. This is extremely dangerous. When the house-price bubble eventually burst in conjunction with the Credit Crunch, the dangers and problems of this obsession became evident.
The problems which this dangerous obsession with housing prices caused are numerous. Firstly, interest rates were kept deliberately low, in part, to help sustain the rises in the housing market. Keeping interest rates deliberately low caused an unsustainable boom fuelled by access to cheap credit. This meant that any economic problems were likely to have a massive impact because the house price rises were not founded on reality.
Keeping interest rates deliberately low also led to a massive decline in savings as the some were living either beyond or on the very limit of their means. A personal debt mountain has accumulated as a consequence. Also house prices were seen by many as actual wealth when in fact they were not. Nevertheless, the perception that your house price was actual wealth led many to use the supposed value of their houses as collateral for spending thereby further fuelling a personal debt boom that eventually would come to a juddering halt.
Another problem caused by the British obsession with house prices was that it allowed the government to take its eye off the ball when it came to more pressing economic questions and long-term decisions. Due to the focus and weight placed on house-price rises and the perceived notion that everything was right with the economy, the government was willing to do almost anything to sustain this boom and ignore any number of vitally important decisions to create a sustainable economic model. Finally, the obsession with house prices created the idea that owning a house was vitally important: People who could never in reality afford a property were getting loans that they could never afford to purchase their own piece of this economic boom.
The obsession with house prices caused a huge number of problems and was a major contributory factor in the economic crisis of recent years. It led to unsustainable boom and inevitable bust and has partially caused the major unbalancing of Britain’s economy. The obsession with house prices, although dangerous to the British economy, will continue because it has now become an integral part of the economic make-up of the country.
However, there is a way to mitigate the damage it can cause. Not by preventing housing booms and busts but stopping them from causing the kind of damage we have seen in the last few years. The simple way of mitigating the obsession with housing prices is quite simply to make more stringent requirements for getting mortgages and other types of credit. Only then will you stop people spending what they cannot afford and causing a huge credit bubble. To stop the obsession from becoming lethal we need to go back to a more conservative and traditional way of finance and banking where old fashion values such as saving and not spending what you cannot afford are paramount.
To read Christopher Wheeler’s other articles visit Christopher Wheeler’s Politics On Toast blog. This article is (C) Politics on Toast.