Last week I went to a meeting in London to talk housing and the ageing society. I was invited to do a quick three minute introduction to the financial aspects of the topic of housing and an ageing population. I thought I’d write up my remarks and amplify them a bit. I’ve also reordered the points a little so they flow better. And, for no real reason other than it’s a bit of a change, I’ve posted at Medium rather than here (click on the title below to go to the post). I’ve also, for a bit of a change, added references to some of the recent work in the relevant academic literature.
On a tangent that we’ve touched on before, it struck me the other day that not only is there a problem of how you manage “letting the air out of the housing bubble” to avoid a downturn, there’s a fundamental issue of: how is it possible to get the money out of house prices and into something else? Because if you just engineer a decline in asset prices, we’re actually (as a nation) getting poorer, as reduced asset prices = reduced ability to borrow, etc.
I think that’s absolutely right. We seem to have got stuck up this particular policy cul-de-sac and no one has many good ideas of how to get back out again. That could lead quite quickly to the conclusion that no politician is going to try to ‘let the air out of the bubble’ in a controlled fashion (assuming that we have the policy tools to do so) and therefore it more likely that it is going to pop at some point.
The policy tools would be a combination of mechanisms which allowed control of the land market and inducements to developers to become builders. The state, local and national, would effectively combine compulsory purchase, settlement planning (but not implementation) and control of housing finance, funded by betterment, aiming to reduce this increment on build costs by increasing volume. This way letting the air out slowly (to avoid the political and economic dislocations of rapid adjustment) could be contrived. Easier said than done, of course, and requiring more than one political cycle. Pie in the sky unless the slow deterioration in housing conditions turns into some sort of political crisis which necessitates and underpins radical action.