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Propping up the housing market

Nearly every day brings a fresh twist to the housing market crisis. Stock exchange response to the US government’s action on Fannie Mae and Freddie Mac has been positive but that was an immediate reaction. As the implications sink in, sentiment is likely to change. Reports suggest that the UK government is also about to do something to “kick start” the housing market. Meanwhile, a Nationwide Building Society commentator predicts that house prices will drop by 25% from their 2007 peak, and the Royal Institute of Chartered Surveyors report that house sales are at their lowest level for 30 years. What is one to make of all this?

The present situation is an unenviable one for any government. It can stand back and let things happen. Or they can intervene to prop up the market to keep it at its present urealistic levels. Or it can run an inflationary fiscal policy and allow price levels to adjust by a fall in the value of money. Most likely, governments will do a bit of each. Whatever happens, people will have to pay, and all that governments can do is shift the bill around. Their inclination seems to be to make taxpayers pay for at least some of the excesses and stupidity of banks and borrowers.

It is a strange inconsistency that the British government is even thinking about propping up house prices, having previously said so much about the need to keep housing “affordable”. A major part of the problem is a failure in understanding, above all, that this is an issue about land. Consequently, most people outside the LVT movement do not appreciate what is really happening. Unfortunately the LVT movement is unable to make the contribution to public debate that it should, as it has no way of presenting the case in the wider public forum, a difficulty compounded by the fact the idea of LVT rests on assumptions other than those habitually held and that in Britain particularly, public debate gives little space for sophisticated argument.