Miles Thinks Housing Market a Speculative Bubble, but What about Supply and Demand? ; OUTLOOK
Warner, Jeremy, The Independent (London, England)
Virtually everyone has got a view on the housing market, and, though this might seem a surprising observation, I suspect that most of us would quite like to see it crash - always assuming, of course, that this could be engineered without damage to the wider economy.
Relatively few people actually have much of an interest in constantly inflating house prices, for the effect is to making housing progressively less affordable. Many first-time buyers are already effectively priced out of the market.
Even those already on the housing ladder are finding it ever more of a stretch to reach the next rung up. Only householders who intend either to exit the housing market altogether, take substantial equity out of it, have bought as a buy-to-let investment, or those - admittedly a growing number - who regard their house as their pension, have a stake in seeing constantly rising prices.
For the rest of us, it would be a blessing to see them fall. All of a sudden, we might be able to afford that rather fine double fronted specimen up the road after all. For most people, low house price inflation is as desirable as low levels of general price inflation.
So it should be a relief to all that according to a new report by David Miles, chief UK economist at Morgan Stanley, salvation is at hand. He's concocted a model which shows that although some of the doubling in house prices in real terms over the past ten years is justified by rising income levels, lower interest rates, and shortage of supply, perhaps as much as a half is essentially speculative, in the sense that it is driven by the fact that people expect high levels of house price inflation and therefore pursue property as a form of saving. …