Forever Blowing Bubbles? Housing's role in the UK economy

Article

The housing market is especially vulnerable to bubbles - there have been four in the UK in the past 40 years, including most recently in the mid-2000s (which saw house prices triple within a decade). These bubbles can be hard to spot early, but they must be avoided if we are to avoid the inevitable fallout when they burst.

House price bubbles are driven essentially by housing supply and demand and, in particular, by effective demand: that is, demand mediated by finance. Over the past decade, a large expansion in available mortgage finance via securitisation created a very large increase in credit growth in the UK housing market, and therefore a huge leap in effective demand. The total effect was to exacerbate cyclicality and volatility in house prices, and therefore to heighten the risk of housing-driven economic boom and bust.

It is high time we re-examined the case for mortgage reform in the light of international lessons and our own rollercoaster ride on housing. After all, there is nothing aspirational or equitable about courting another recession.

Related items

  1. The health mandate: The voters' verdict on government intervention

    The nation’s health is now a top-tier political issue.

  2. Reclaiming social mobility for the opportunity mission

    Every prime minister since Thatcher has set their sights on social mobility. They have repeated some version of the refrain that your background should not hold you back and hard work should be rewarded by movement up the social and…
  3. A photo of a hospital corridor. A bed on wheel sits waiting while a person in scrubs runs away blurred in the distance

    Realising the reform dividend: A toolkit to transform the NHS

    Building an NHS fit for the future is a life-or-death challenge.