Tuesday 17 September 2013

Pretending there's no housing bubble

BrokeI was whizzing back down to London during the Lib Dems economy speech yesterday, but I watched it all later.  Nick Clegg's summing up was highly effective.  So was Vince Cable's 'hated Tories' speech later, not so much laying into his cabinet colleagues - as the news reports say - but laying into the election machinery behind them.

But in retrospect, I find the whole business pretty infuriating.  Clegg wasn't allowed to go over time - a sign of an authentic debate if ever there was one (I can't see Ed Miliband told to "bring his remarks to a close") - but the framing of the economy debate was obscure at best, and manipulative at worst.

It set the two sides arguing with each other on a series of propositions that nobody in the party would really disagree over.  It sought out wafer thin, almost theological, distinctions - and pretended this was somehow a great victory or a great defeat.

Perhaps most annoyingly, it allowed the media to talk up a rift between Clegg and Cable when what was actually happening was a predictable rift between the Treasury and BIS.  The economics motion was written from an irritatingly Treasury-centric standpoint, omitting what BIS was doing to rebalance the economy.  That was what irritated Cable.

But perhaps the most annoying legacy of the debate is that it led otherwise sensible people like Danny Alexander to claim that there was no house price bubble.  This gives the impression that there is somehow no problem about house prices - when actually the 30-year house price bubble is the biggest threat to the well-being of the next generation (see my book Broke).

My own house would be worth £45,000 at average rates of inflation since 1937, when it was built, but it is actually now 'worth' ten times that.  My children won't be able to afford to live in this not particularly prosperous south London suburb - not without 25 years indentured servitude in the financial industry (so much for wanting to be a teacher).

The truth is that the banks are, knowingly or unknowingly, stoking up house price rises because - at the moment - a worrying proportion of their property holdings are in negative equity.  In fact, a quarter of their UK loans on commercial property are in that state.  Of course they want to raise property prices up to the level of the last bubble - and they will: 70 per cent of business loans are on property.

These things matter.  So why did the party engineer a conference debate dedicated to implying that somehow it doesn't?

I know, I know.  It was all about what the government can do now - and the plan is to gear up local government borrowing to build affordable homes.

That is vital, but don't let's pretend that the property bubble hasn't been looming over our lives for a generation now.  Any idea what the average UK home will be worth in 30 years time if prices rise until then as they have in the last 30 years?  The answer is £1.2m.

No comments: