Osborne has announced that the Bank of England is to get the right to cap mortgage loans as a ratio to income. I have no doubt that the power will be used.
Instinctively this feels appropriate but instinct can be wrong: do remember the unintended consequence, which is that this simply makes it easier for the wealthier buyer to get the house at a lower price than they would otherwise pay, so actually increasing inequality in the housing market.
This is a desperate measure that addresses the symptom and not the cause of this malady. The cause is a shortage of housing supply, too many houses being retained for investment, the absence of appropriate taxation of housing and land and the failure to build decent social housing for a wide range of need. And all we get in response is a banking solution, not bricks and mortar.
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What will that ratio be 100:1! You are absolutely right, Richard, to see this as trying to desperately paper over a problem that is grand canyon sized. Why the public are not yet outraged by 30 years of bank-induced bubblery I don’t know-probably another example of ‘zombie economics’ at work-dead ideas that become the walking undead.
The only period of house price stability in recent times was during the post 2008 period when credit was constrained. Whatever the other drivers of prices are, availability of funds is absolutely key.
That’s not to say we should not be building a lot more (both social and private) or taxing land values.. I strongly support both.
What struck me most about Osborne’s announcement was his suggestion that everything is fine at the moment, but the power should be there in case there’s trouble in the future. Perhaps he doesn’t want the bubble pricking until after the general election?