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Saturday, 22 July 2017

Building more houses didn't bring lower prices.
Here's what happened in Ireland.
IRELAND: Housebuilding quadrupled, AND SO DID PRICES!
Supply and demand. You can’t buck the market. So increasing supply is always a good way to hold down prices in the market, isn’t it? 

So why won’t the call to “build more houses”, even if heeded, result in more affordable homes? Because the housing market is not normal. It needs fixing, but Government has no real intention of bringing down house-prices. Maybe saying ‘building more homes will fix it’ is a dodge to avoid mentioning the real  solution. 

That seemed to be the idea behind the latest Government Paper on Fixing Our Broken Housing Market[1].     
So how can I be so sure that increasing the supply of houses by building lots more won’t bring down prices?

Perhaps the recent experience in Spain and Ireland should make us sceptical. House-building booms in both of these countries prior to the 2008 Crash didn’t bring down prices. Instead they finished up with ‘ghost estates’ of half-built stock strewn across the countryside. Look at this graph from the Celtic Tiger.


Good grief! As prices rose after 1990 so supply (completions) also rose! That's not what they tell you in Econ101. After the Bankers' Crash in 2008, falling prices produced fewer houses.

That's all wrong, according to Economic Theory. So let's face. The Housing Market is not normal, nor is it like other markets. Building more will NOT bring down prices. Why do the brainy boffins who write papers for the Government not notice that? Perhaps they don't want to accept the alternative view. The Banks have pumped money into mortgage lending. This has pushed up House-prices (Land Prices really). Housing is now an investment good.

What needs to be done? Stop the Banks continuing their incontinent lending? Good start. It would be much better to reclaim the unearned Rent from the monopoly holding of Land and use it for the public good, not bankers' bonuses. Time for Land Value Tax

[3] /attachment_data/file/593883/House_Building_Release_December_Qtr_2016.pdf
[5] See for ex. Reports on Bovis saga Feb 23, 2017

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