The housing green paper: more shoddy work on the foundations
‘No nonsense thinking’ is exciting because it leads to practical ideas about living your life which bring tangible rewards. The UK’s conventional wisdom that owning your own home will bring greater rewards than renting or leasing is a good example of how slavery to an idea can lead on to slavery to a bank or a job and damage life goals requiring money that may have even greater value, such as learning new skills, family-raising and retirement saving.
The belief that it always pays to get on the ladder owes much to the notion that structural shortages in supply, explained by planning restrictions, have the predictable effect of pushing the bottom rung inexorably higher. If true, it has huge differences in implication compared with a cyclical view based on the supply of money and credit. A monetary view of inflation-adjusted house prices means affordability problems are mainly created by loose money and solved by tight money, leaving the underlying trend broadly in line with real incomes. This is exactly what we think the evidence supports (search the site for ‘house prices’). The Government’s new green paper (as reported today) repeats the shallow assumptions about causation, focused on net new construction and planning issues, made by earlier reports it commissioned. This is unfortunate not just for policy outcomes but also for the priority to disabuse the public’s mistaken beliefs about debt-financed property ownership before even more damage is done.