Housing market will not boom until 2015

The housing market will not boom again until 2015, according to Professor Stephen Nickell, Warden of Nuffield College, Oxford, in an article in the Daily Telegraph here One might ask why it is desirable that the housing market should boom at all. After all, only the oil producers are happy when the oil price booms, and when food prices boom, people may even get together and have riots. So what is different about house prices?

And there is a further question that one might have expected the professor to be asking. The present “credit crunch” is largely due to the large scale lending of money for land purchase (misunderstood to be house purchase), to people who cannot afford to pay back what they have borrowed. The first consequence was the boom, with the bust as the inevitable after-effect. Does the professor really think that these boom-bust cycles are desirable or inevitable?

Prof Nickell, who is the chairman of the National Housing and Planning Advice Unit, said he was extremely worried that the credit crunch would keep first time buyers from getting onto the property ladder.

Of course, one of the things that happens during the boom phase of the cycle is that people find it increasingly difficult to get on to the “housing ladder”, as the bottom rungs of this ladder rise beyond the reach of more and more people. Now that morgtages are difficult to obtain, the house (land) prices are not falling to take account of reduced effective demand, and so matters are no better. But why does there have to be a housing ladder at all? This is not a game of snakes and ladders. People need homes to live and raise their families in, and they should not be saddled with huge debts where large chunks of their earnings disappear as payments on the interest of those debts. This is not a healthy feature of any economy and it is unfortunate that the most eminent academics in the land seem to regard it as an inevitable feature of life.