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House prices double

The banner headline in today’s Daily Express seemingly rejoices in this piece of “good news”. The article continues “The housing market has defied gloomy ­predictions to end the year with prices up by nearly six per cent. And in a clear sign that bricks and mortar remain a sound investment, the price of the average home has more than doubled over the past decade, it was revealed yesterday.”

The author, Sarah O’Grady, could hardly be more wrong. Presumably she is a home owner herself. Surely she has noticed how much she is has to spend on the building? Bricks and mortar are a rotten investment. Literally.

Time and the weather take their toll on the fabric of any structure. Keeping bricks and mortar together means continual spending. Regular readers of our web site will be aware that it was the price of land that went up, not its cost, since land costs nothing to produce.

Why is this good news? When the price of other essentials such as food and clothing goes up, it is regarded, rightly, as bad news. So why is it good news that the price of getting a roof over one’s head keeps on going up, not because the cost of the roof has risen but because of the price of the land beneath?

For the record, the Express continues, “Average values rose from £75,000 at the turn of the ­Millennium to £162,103 – a rise of 117 per cent. Despite the worst recession since the war, prices in 2009 shot up by 5.9 per cent after falling by almost 16 per cent in 2008. The buoyancy of the market has surprised and embarrassed many economists. Experts had forecast prices would fall by as much as 20 per cent in 2009. The past decade has been the strongest on record, according to Nationwide, the UK’s biggest building society. Even taking inflation into account, the price of the average home increased by 68 per cent compared with a 14 per cent fall in real terms in the 1990s.”

Read Daily Express article here