| > This is really beginning to concern me. I think we’ve created a fake plastic economy built on face plastic house prices. By stoking the bubble, the purchase and renovation of housing keeps pushing money through the economy. This has been an issue for a long time now. There should have been a crash in 2008/2009 but instead the government in the UK decided to prop up house prices with various schemes. I'm not saying this is right or wrong, for many people, house owners and people looking to purchase, this helped people stay out of negative equity/allowed people to purchase their own home. > By constantly remortgaging, new value is “created” which allows people to have a new kitchen, go on holiday, buy a car, extend their house. But it feels like a trick to me. I’m not an economist, but where’s the wealth creation here? I'm not sure remortgaging is creating new value. All money is loaned into existence, remortgaging is just creating new debt secured on your home. It still has to be paid back. People could still get loans, just not perhaps at the same favorable rate. There has been a lot of money printing over the past 10 years or so, I think rising house prices are a natural result of that. I think it's more of a case of decreasing purchasing power of the £ in your pocket, rather than homes rising in value. Have a look at this chart when house prices are compared with gold[0]. It's also a function of the availability of loans, since now you can borrow cheaply over long periods, this increases the total amount people are able to borrow, as it's much easier to service the debt. What's more surprising to me is that we're not really seeing inflation in other areas of the economy, such as wages or consumer goods. Inflation has been surprising low since the crisis of 2008/2009. [0] http://pricedingold.com/uk-house-prices/ |
“Value” in quotes because it isn’t, as you said.
Regarding inflation: I think house price rises have been stoked by the stamp duty trick once again, but agree that there may also be a bit of inflation mixed in.
The reason we’re not seeing general inflation yet is the extra money supply has yet to leave bank accounts and move through the consumer economy. After things open up, we should see that money being spent and a short term boom, then as demand rises prices will respond and we’ll see inflation. At least according to Keynes, who in retrospect just seems to be more and more correct.
Wages won’t rise at the same pace because employers will exploit inflation, the trade unions are weak, and the govt doesn’t care - 120K dead and the Tories are seven points ahead, reality doesn’t matter in U.K. politics.