Interesting reading this afternoon.
Albert Edwards writing in Societe Generale’s weekly Global Strategy note to clients has blamed the Bank of England for causing the housing crisis, arguing that Britain doesn’t actually have a shortage of housing, just a big imbalance in supply and demand.
The report highlights the Bank of England’s reliance on quantative easing going as far as saying Carney is a “bubble-blower extraordinaire.”
Here is an extract from notes sent to clients:
One example where I find market participants have totally swallowed the policy-maker’s mantra is that the solution to the UK housing shortage is to build more houses. This propaganda has been repeated so much that it is has become the 100% accepted truth. Indeed, it would have escaped nobody’s attention that UK house prices have been booming and are at nose-bleed levels of expense on simple price/earnings measures.
I’m sorry, but if monetary policy is too loose, you can concrete over the entire length and breadth of the UK and house prices would still rise. There is no shortage of housing. What there is, is an imbalance between demand and supply and demand is excessive because of crazily loose monetary policy. It’s as simple as that. And, as the most prescient guys at Fathom Consulting have pointed out, if there really is a shortage of houses, surely rents, like house prices, would be rising too, way in excess of other prices in the UK economy?
Politicians have cottoned onto the fact that rising house prices equals more votes and so it seems the UK’s political elite will do anything in their power to keep house price inflation. In fact UK house prices have risen 7% per annum since 1980 creating a huge bubble that is only sustainable with ever-increasing government support.
Government support that has bid prices up in relation to income, the very same support that is supposedly to help first time buyers such as “Funding for Lending” and “Help to Buy” is just deliberate stimulus to keep house prices rising!
So if government continues with its Quantative Easing and it’s smoke and mirrors support for first time buyers which has resulted in fewer first time buyers and house prices five times average earnings they can build all the houses they want.
With loose monetary policy in place they can never meet demand as every man and is dog is happy to take a punt on the one way bet that is British bricks and mortar.