When All Else Fails, Housing Bubble

Last month I asked:

So what’s Osborne’s plan to generate growth?

Today we seem to have an answer.

As Anatole Kaletsky sarcastically put it:

That’s right — aside from an underfunded infrastructure pledge, a duty cut on beer and cigarettes, and a tiny and delayed corporation tax and national insurance decrease, George Osborne’s plan is to throw money at housing and hope for the best. 

Sounds markedly similar to the American strategy following 2001 when Greenspan “created a housing bubble to replace the NASDAQ bubble”, and we all know how that ended.

I’d tend to argue that the opposite is a much better idea. Instead of propping up the housing market, Cameron and Osborne should deregulate construction and planning (getting planning permission can be a long, costly task in the UK, and planning restrictions are estimated to add up to £40,000 to house prices) so that housing prices fall (if not absolutely at least priced in median wages) and Generation Y can start getting on the housing ladder.

As Faisal Islam put it:

But alas no. Instead of using the ultra-low interest rate environment and idle resources to invest in a quality business infrastructure  — high speed broadband, roads, railways, energy — and lower unemployment, Osborne has chosen to throw his stock in with the malinvestment-loving property speculators.

Unfortunately, pumping up credit bubbles can win elections (as we saw with Bush in 2004), so this may have improved the Tory electoral chances for 2015. But in the long run, we will see this as a dire move.

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