This excellent 10 page paper from Civitas highlights the consequences of an artificially inflated property market on people who use houses as a place to live rather than as investment vehicles”
“The UK property market is being used as an investment vehicle by the global super-rich – and increasingly the simply well-to-do. The inflationary impact of this extra cash is good news for property owners (until they want to trade up the housing ladder). It is good news for estate agents on commission, who report with glee every pulse and surge in the market. But it is not good for those already being priced out at the bottom.”
Although the paper focuses on the effect of foreign money flowing into the UK property market and pushing up prices, the reality is that this happens because UK house prices have been consistently pushed up faster than wages as a result of the ability of banks to create new money when they make loans. In the 10 years running up to September 2007 – the start of the financial crisis – 40% of all the new money that banks created went straight into the property market.
Unfortunately the current government, worried about the impending election, is committed to further inflating the bubble:
“In fact, through Help to Buy the coalition has bolstered demand. This government scheme may be supporting first-time buyers that would otherwise struggle to afford their own home, but it is necessarily finite in its reach and will only serve to inflate prices further. The Bank of England has already stopped another government equity programme, Funding for Lending, from being used to support home loans. But amid increasing warnings that the property market is overheating again, there seems little interest from the Treasury – little more than a year from a general election – in curbing prices.”
The full report (10 pages) is well worth a quick read.