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by csrm123
3720 days ago
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The article seems to suggest that low interest rates are the cause of high house prices: it argues that house price inflation is out-of-control, but could be brought under control with higher rates. This would certainly deter buy-to-let landlords. But, given that the world generally is doing quantitative-easing and 0% rates or lower, this would be a very contrary position for the UK to adopt. What would be the implications of that policy? I can't believe it hasn't already be considered. So why has it been dismissed? |
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Low rates are supposed to affect the economy to increase inflation through (b): businesses buying inventory, building factories, developing new products, etc. This "transmission mechanism" is now broken because there is a shortage of suitable demand. Businesses do not want to borrow to expand because there is no good prospect of a return on the expansion. So we can't push on that rope.
Low rates caused a property boom which resulted in a temporary economic boost to several European countries (especially Spain and Ireland): the cheap money ended up in the pockets of construction workers, who spent it.
We need some means of diverting the cheap money from (a) to (b). Possibly a tax on leverage, if that's feasible.
In the short term, the UK should get a proper property tax and apply punitive rates to property owned by non-EU individuals or companies.