Comment by londons_explore
3 years ago
This is a smart move.
House prices are mostly determined by how much leverage people can get to buy them. Look for example at unmortgageable houses (eg. due to construction type or land covenant), and they are around 5x cheaper for a similar living space.
House prices must continue to rise, or the debt-tower collapses, and everyone ends up penniless. Some people say thats what they want, but a real uncontrolled housing collapse would be far worse than 2008, and would likely end in a multi-generational economic downturn.
Successive governments have taken lots of moves to maintain high prices - "help to buy" ISA's, shared ownership, small downpayment mortgages, 'affordable' housing, etc.
Those things are also very politically convenient because to the layperson they seem like ways to make housing more affordable, when in fact the market result is house prices rise further.
Will there ever be an end to the rises? Maybe not... Inflation in the British Pound has gone on for hundreds of years. House price inflation can do the same. Will they continue to rise faster than inflation? Maybe... If you can construct more and more elaborate ways to get higher leverage. There are lots of options left, like for example the government could back mortgages with interest rates below market rate.
I tend to disagree. If anything, it would make everything more expensive and at the same time more unstable.
The school of thought that I subscribe to in economy is that everything is priced in. Relaxing the terms of lending increases risk, drives up the price of said mortages und amplyfies the fallout in times of market turmoil.
Edit: Reread your comment, we are in fact in agreement.
> This is a smart move.
> House prices must continue to rise, or the debt-tower collapses, and everyone ends up penniless.
It's not a smart move. Price cannot and do not trend in one direction forever. This is natural force to discover market clearing prices and thus efficient resource allocation. The only difference is how bad the pullbacks are.
Just ask any central bank which has lost a battle against the free markets (which is all of them). It's much more costly.
It’s not a smart move. Doesn’t really address the real issue.
Young folks in the U.K. already have it hard enough. Nothing is going their way.
I see other in this thread maintaining that this sort of thing is normal. Well I think they’ve been conditioned to think it’s normal. To me it’s not normal to pass on debt to children. We’d all prefer to pass on wealth to our children.
U.K. need to address the issue of supply. They also need to address the issue of individuals building up so called property empires. Our whole perspective around housing in U.K. has to change. It’s an utter mess.