UNSAFE AS HOUSES; We Are in the Middle of One of the Greatest Property Booms of All Time. but a New Book Is a Timely Reminder That History Is Littered with Fools Who Thought That the Bubble Would Never Burst

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THIS week a tree-house in Cambridgeshire went on the market at [pounds sterling]2million, a sure sign that we are in the middle of one of the greatest property booms of all time.

Houses in fashionable London valued at [pounds sterling]20 million or more are now numbered in hundreds. The million-pound house is commonplace. With interest rates low and money available for loans in plentiful supply, families are being encouraged to take out enormous mortgages, thus saddling themselves with debts running to many hundreds of thousands of pounds.

It's true that a mortgage is not an ordinary debt, the house providing the security.

Many houses have doubled in value in recent years and buyers of high-priced properties believe the purchase will double again, thus allowing them to sell it, pay off the mortgage and make a huge profit which is not subject to capital gains tax.

This may prove to be true. On the other hand, the experience of the Eighties property boom shows that house prices fall too, threatening the possessor with the dread punishment of 'negative equity', in which mortgage is greater than the sale price of the house.

Make no mistake: buying an expensive house in a boom market is speculation.

And speculation is a form of gambling, and that can bring ruin as well as riches.

A new study of booms-and-busts in history by Edward Chancellor, aptly entitled Devil Take The Hindmost, points to the central role property speculation plays in most financial crises.

A typical case is modern Japan, whose

economy has been in recession for an entire decade because its postwar boom, fuelled by an insane rise in land values, led to reckless accumulation of debt.

Chancellor calculates that between 1956 and 1986, the cost of land rose over 5,000 pc in Japan. By 1990, the Japanese property market was valued at 1,000 trillion yen or four times the real estate value of the entire United States. The grounds of the Imperial Palace in Tokyo, no bigger than the gardens of Buckingham Palace, were estimated to be worth more than all the land in California.

SO VALUABLE was space in Tokyo reckoned to be that plans were made to construct an underground city there, more than 300ft below ground. Now all is dust and ashes, and most Japanese banks are technically insolvent because they lent so much money for property investments which are now almost worthless.

Booms occur when goods are valued more highly than money.

A bust, followed by a slump, takes place when money reasserts its primacy and goods, including real estate, fall in price. Between the beginning of the boom and the onset of the bust is a period of growing unreality, climaxing in sheer madness, when the investing public totally misjudges the value of a particular sort of goods.

In the Eighties, Japanese speculators regarded a square yard of earth in Tokyo as a magic token of wealth. It was a form of earth worship, as insane as the most bizarre pagan cult.

Overvaluing land has a knock-on effect, most spectacularly illustrated in Japan by the rising cost of belonging to a golf club. During the boom, more than 20 smart clubs cost $1 million each to join - the Koganei Country Club had an entrance fee of $2.7 million.

The leading Tokyo financial paper had a 'Golf Club' index, as one way of calculating national prosperity. During a boom, almost any kind of goods can acquire this superstitious significance in the minds of speculators. In the very first European boom-and-bust crisis, in Holland in 1639, the magic object was a tulip bulb.

Growing rare tulips had long been a passion in the Low Countries, but during the 1630s it became a mania. At a time when the average annual wage was 300 guilders, the Semper Augustus tulip bulb, the most highly prized, rose to 2,000 guilders, and at the height of the boom rocketed to 6,000 guilders. …