Fact 4. Liberalised, predatory finance is the main driver of consumer demand and hence hyper-inflated prices
 

See how prices track lending (mortgages) step by step 

Here’s what J R-C reminds us:

  

“First, a number of recent empirical studies  suggest that house price rises are more likely to be a response to credit supply expansion rather than a cause.  

 For example, a study found that between 1994 and 2005, US deregulation explained between one half and two-thirds of the observed increase in mortgage loans, and between one third and one half of the increase in house prices.

 
Second, other studies have found credit constraints to be the most important factor in explaining cross-country differences in house prices, which helps to explain different house price responses to the same shifts in interest rates.
 
Third, the UK was not alone in seeing rapid expansions in mortgage credit correlated with rising house prices.

For example, one study found that across 16 high-income economies, on average, mortgage credit rose from 40% of GDP in
the mid-1990s to 70% by 2007, with house prices doubling over the same period (see Figure 4 above).

Given all the differences in other potential explanatory variables
in such a large sample of countries, such as the elasticity of housing supply or changes in income, expansion in mortgage debt, which occurred nearly everywhere in the 1990s, is the most convincing intuitive explanation.

It gets worse! Research shows liberalising mortgage credit actually led to  lower levels of home ownership as affordability has worsened across many advanced economies.

Furthermore, rising mortgage debt and credit liberalisation are not associated with
 increased construction of new homes, as is often claimed.
 
Another explanation is that commercial home builders lack incentives to build out at a rate that would reduce house prices, even if more mortgage credit is being made available to theoretically support more construction.

 As a result, more credit flows into competition for existing homes,
 further inflating house prices and developer profits.