Merryn Somerset Webb
A dodgy housing deal
Let’s say you are a first-time buyer desperate to have your own house at a time when house prices are overvalued by most historic measures. And let’s say that I have some control over house prices. I give you two choices.
I can let house prices fall to their long-term average relative to earnings so you can afford to buy a house; or I can put in place policies to ensure that (for now at least) house prices don’t fall, but at the same time indulge in some dodgy dealings with the banks to help you get a loan you can’t afford to buy a house you can’t really afford.
Which one would you go for? The first? Me too. And if I were the government, I’d give it to you. Sadly, I’m not and it won’t. Instead, you’re getting the second option, like it or not.
This week’s Budget made a couple of things clear: that debt- and growth-wise, Britain is still in deep trouble; that as a result of this, the Bank of England will keep interest rates “lower for longer” to be able effectively to ignore its inflation target in pursuit of the magic unicorn that is modern growth (see here for more on this style of financial repression); and that as far as the Treasury is concerned, the best answer to our troubles remains pretend austerity combined with monetary experimentation and a ban on market forces operating in the housing market.
• Read the full editor’s letter here: A dodgy housing deal.