We’ve another one of these lovely ideas from IPPR, the Institute for Public Policy Research. As with all of their suggestions it manages to spot a useful nub of an idea and then completely blow it by not understanding how economies work. They think that a period without house price inflation would be a pretty good idea. They’re right, it would. To do this they suggest that the Bank of England shout be given all the powers that we stripped it of some decades ago. And it also thinks that price targeting is something that can work in a market economy. Not something that anyone’s really ever been to prove capable of, is it?
Sure, the average price level can be manipulated, a bit at least, through policy. But more specific prices?
Bank of England should freeze house prices for five years to allow people’s wages to catch up, think tank argues
Well, of course, in the Brave New Corbynista World ministers themselves will have the power to determine the price of individual items. And they’ll never get it wrong, either. It’ll all work perfectly just as it has done in Venezuela which is why Jezza admires the policy so much. But in the absence of that then why not this?
Mortgage restrictions should be imposed on UK homebuyers by the Bank of England to prevent house prices rising for at least the next five years, a prominent left-of-centre thinktank has argued.
And there’s the bit about IPPR not understanding economies. If you’re going to ration something then you ration it by price. Because the price system works, rationing by other means does not. That’s why we got rid of those direct controls over credit issuance. We replaced a queue of eager supplicants for a mortgage – usually 6 months or so long – with the price of money, the interest rate. This was the right thing to do as well – for rationing money, just as with anything else, by the price of it works while trying to do so with queues doesn’t.
So, if you want house price rises to moderate then you should raise the price of money – increase the interest rate.
We’ve another indication that IPPR haven’t the first clue in that house prices are already moderating, in fact in London at least they seem to be falling. Which is an indication that this price targeting of an individual item is rather difficult, no? The proposal to limit price rises is coming to the fore as they’re falling already. Well done there. For that’s actually the argument against any such detailed intervention in the economy. The proposal, to be followed by debate, finally action, always does take time. Enough time for the original problem to be either solved, forgotten or changed beyond all recognition. You know, like a new train set from London to Birmingham. At least one idiot has insisted that it would be Keynesian stimulus to the economy. But we’ve not even started the damn thing yet and we’re already at record low unemployment levels, record portions of the population in the workforce. That is, we’re about where Keynes himself would say that we should be thinking about not having stimulus, even austerity.
But then we’ve got to consider that the IPPR really don’t understand economics. House prices are high because we’re not building many of them. The reason for that is the paucity of planning permissions available. Issue more of those and house prices will come down. So why do we need to take retrograde steps back to the 1970s and mortgage rationing when we could be truly conservative and leap back to the 1930s by abolishing the Town and Country Planning Act 1947?
Oh yes, that’s right. The IPPR believes planning works and free markets don’t. Despite the 1930s being the last time, blessedly free of planning as it was, that the private house building industry constructed 300,000 houses a year, the last time that houses cost roughly what houses cost to build. You know, those terrors of a free market?
But Tim, think of the planners, unable to feed their kids, out on the street! And after a lifetime devoted to telling other people what to do.
Happily, as few people have “planner” tattooed on their foreheads at birth, as “manufacturer.” They could adapt and perform actual useful work.
We are to have house-price tyranny for five years to give freedom “the chance to catch up”? (And it is tyranny, because “its price five years ago” is not the right price for a house, if people’s preferences and the relative appeal of different regions change — or if anyone were enough of a fool to enhance or maintain his home under this policy. And those setting the price will not just occasionally be wrong, they will pay no price for being wrong.)
The easiest way to make houses cheaper would be to reduce rent subsidy in expensive areas to those who don’t work there for 35 hours a week.
Although this would not freeze prices but crash them.
We should have done this 20 years ago but better late than never.