If only we’d seen it as a property bubble. If only we’d realised price rises can’t go on for ever. If only we’d have woken up to the fact that house prices seven times the average income was a crash waiting to happen.
Hindsight is a valuable thing. We didn’t take seriously any of these possibilities during the boom. Not Whitehall, industry, government or opposition. There were some sane and far-sighted voices in the wilderness, such as Shelter’s new Head of Policy, but they were certainly the exception.
With this new wisdom even a Tory government is saying government should have intervened in the housing market and would use in the future ‘levers’ to ensure a bubble did not inflate again.
It seems highly likely to me that rapid house price rises will resume again as soon as lended loosens up (which could take a while admittedly). But we don’t have to wait until then to try out our new wisdom.
A colleague recently drew my attention to house prices in Australia, a country considered to have managed its economy well and escaped the worst ravages of the global recession. However, if you look at their house prices, it looks like they have simply delayed their crash:
Australian house prices are booming and escalating higher still with broadly the same factors that drove the unsustainable increase in Britain and with households taking on similarly huge amounts of debt.
So with new-found wisdom and confidence that we can deflate any future bubbles, what should we advise the Australian Labour government to do, that would a) work, b) not cause the bubble to burst quickly and c) carry enough popular support so that it can be done by a government with a majority of one.
We’ve got a real life exam question here; I’m still not sure we have a credible answer for Australia now or Britain again in the future.