The press are reporting a surge in house prices, and linking
it with economic recovery.
Prices fluctuate with supply and demand. Consider the price of something for which
supply is fixed. There are only so many
people who can be accommodated within the Wembley Arena at any one time, and so
ticket prices will be governed primarily by demand. The only way a given act can increase the
supply of tickets is either by playing more than one concert at a given venue,
or else choosing a larger venue. Demand
for tickets is influenced by who is actually performing on a given occasion,
and also by how much money people can afford to pay.
When times are hard, many people spend their money primarily
on necessities. When the economy is
growing, people are more likely to spend money on luxuries such as concert
tickets. With more people wanting to buy
tickets, the price can be expected to rise.
It is only to be expected that people are more likely to
want to buy a house when the economy is doing well, and yet the difference is
that the supply of houses can in theory increase to meet demand. In reality though it is unlikely that supply
will increase to meet demand, and that is why house prices rise.
Perhaps the greatest pressure on demand for housing is
immigration. Another pressure is caused
by fat cat company directors or public sector managers whose obscene salaries
allow them to buy two or more houses while millions of ordinary people struggle
to afford just one house.
It is misleading therefore to present rising house prices as
an indicator of economic wellbeing.
The best way to ensure that demand for housing does not
exceed supply is to stop immigration at once.
Another helpful move would be to make it illegal for anyone to have more
than one mortgage at any one time, and also to place a cap on the value of new
mortgages. If fat cats are going to buy
more houses than they need, then they could at least do so by paying cash
instead of taking out yet another mortgage.
Previous posts on the subject of housing and fat cats include:
Micro-life
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