Can one teach the other, any lessons? Here is the definitive explanation.
Background:
The government excludes housing costs from the measurement of inflation because:
The primary tool for regulating inflation is the the interest rate. If they included housing costs, the substantial part of those costs would be interest; which would (in extreme circumstances) cause a spiralling effect (a feedback) – both in an upwards and a downwards direction depending upon whether the interest rate was increasing, or decreasing.
RPI still includes housing costs, as a control indicator. CPI does not and that is why the measurement of inflation uses CPI, which excludes housing costs.
The government views housing costs as being entirely relative to the state of the economy – and prices being entirely the result of current growth or contraction.
Estate agents are the ‘nurses’ (or the worker bees depending on how you view them) that go about making the market happen. The government are therefore happy to acknowledge the job which estate agents do but prefer not to interfere with how they do – it too much!
For these reasons, even if house prices go stupidly high, its unlikely that the government will do anything to regulate this. What a shame this is.
This approach results in disaster in the house market, booms then slumps. Flurries of activity, then nothing.
As the housing market has always been volatile because of this regime, its best to sell at the top of the market, wait; and then buy at the bottom.
Always buy in, at the bottom of the market. Rent somewhere whilst you are waiting for this scenario.
If you’re an existing home-owner, only ever move up the ladder when the market is depressed.
Such a market is so disabled. Should we be putting up with this forever?
You should conclude: No, No, No.
Why?
If you think that the insatiable desire of this country’s middle earning population, (rather than the higher earners), might moderate after they’ve got a reasonable amount of comfort – you’d be wrong.
The thing is, people are never satisfied with whatever they’ve got for long, speaking generally of course. There are a minority who do know otherwise, but these do not influence the large majority; very much.
Politicians need to know and understand these things if they are to stand a chance of making better decisions, than the ones they have made previously.
The conclusion therefore is:
House price increases will not be curbed, merely by letting the market sort itself out; letting it simply find its own level. There needs to be a more hands-on approach by government. An approach that will lead people along the least painful path. Allocating the clearly scarce resource of ‘places to live‘, must use genuine need – as the primary factor, not simply trying to obtain the highest possible price.
The way to do this is to factor in borrowing limits? Yes indeed, however there’s more. Its getting a more inclusive way of marketing houses. Getting agents to adopt a more ‘nurse-like’ attitude to the problem and less of the playing one ‘patient’ off against the other approach – knowing that critical care is needed to find bigger roofs over the heads of growing families. More understanding, yes. More compassion, ultimately.
Instead of being the most hated profession, estate agents should strive, in this way, to become the most loved.
Will they ever? Not without government help in getting them to understand how to get the housing market singing again, at prices most people can actually afford.
This is not just about economics, its about sociology too. Unless you embrace both, none of your arguments are likely to be; valid ones.
Doing nothing is like saying ‘Glastonbury’ will cease to be popular – one day. I don’t think so, no. Not any time soon anyway.
For as long as the full moon rises over the fertile Somerset clays, people who are appreciative of being more connected (come rain or shine) will hope to congregate there; whatever. The quality of the music is almost incidental to the overall scale of such an event, in the peoples’ minds.
To try and deny its relevance, would be a mistake – even if you are The Government.
In the same way, just leaving the housing market to sort itself out, by price alone, will never work – not in this millennium anyway!
Posted by: Peter Hendry: A freelance online blogger, with a passion for anything house-like
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