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http://pragcap.com/quantitative-easing-the-greatest-monetary-non-event

some links from the blog linked to above are worth looking at: http://politicalcalculations.blogspot.com/2010/03/english-housing-bubble.html and this comment from the big picture blog: Well, as long as we’re looking at real estate bubbles in the same nations: Australia Canada UK (England) USA I will say that I’ve revised, but not yet published, my view of the Canadian housing situation. Based on what I’ve learned since first developing the analytical technique presented in the posts above, I would argue that Canada’s real estate market entered into the inflation phase of a bubble between 2001 and 2002, although not directly. What I mean by that is that the Canadian real estate market is behaving rationally in response to an economic bubble acting outside Canada’s housing market. Kind of like how textbook prices rise alongside the cost of a college education in the U.S. The bubble is in U.S. higher education, but textbook prices are going along for the ride. I suspect something similar is happening in Australia, although its origins predate the data used in my analysis, which is suggested by Freddy Hunter’s data. As for what’s taking the Australian and Canadian housing markets for a ride, my best guess is that it’s a result of their trade with China, which would explain why Australia’s housing bubble would appear to have begun sooner and become much larger than the other nations, as indicated by Hunter’s data. Or in other words, the main economic bubble driving all this is to be found in China, with housing prices in other countries following in response.

I think that makes sense but that doesn't help determine which the forces are that are changing productivity and therefore showing up in land prices. Surely land will always enclose the economy so that other fluctuations will drive its price up or down. So you could say equally land is a hostage to the wider economy could you not? But once again the land price is systematically much much higher 1682-1800 than it is in 1800-2000. I want to understand the flucuations that are causing that difference.

hotairmail - thanks for the link above and thanks tamara de L too. I'm not sure I buy both of your explainations though. Even with the greatly expanded credit in the 20th century compared to the 18th century, the average real house price in the 18th century was much higher than in the 20th century. In fact it would appear from the graph that roughly 1960 represents a historical low in house prices for the entire period in the graph with the sole exception of the first half of the 19th century. The impact of the south sea bubble and the subsequent collapse in the second spurt doesn't seem to have altered the basic trend of high real houseprices in the 18th century - much higher than the 20th century average. What worries me looking at this data is that the classic 3.5x multiple concept would appear to be derived at near a long run historical low of real house prices.

I think a better question to ask is who gets hurt by the forces that have created high house prices? house prices are high for a reason and restricted supply can't be the main one because the change in population since say the 1960s don't explain the price changes by themselves. And it can't just be credit either. This is the herengracht index of real house prices (inflation adjusted) along one well-to-do canal in amsterdam since 1682. I'm not aware there was a very major ponzi credit industry for purchasing houses in middle 18th century yet real house prices in that time seem on a par with where we are today.

it is impossible to experience real happiness or contentment except by contrast with unhappiness or discontentment, which explains why the initial experience of having suddenly 'enough' money whereas before one had not enough generates significant happiness but that further accumulation beyond that point does not add to happiness - there is no further meaningful contrast. similarly, constantly comparing oneself (a have not X) with another (a have X) will generate unhappiness because the contrast is stark. If people in this and other similar nations are unhappy about financial matters it is mostly like to the stark contrast arising from everyday comparisons, and the cultural propensity to make them. We are making ourselves unhappy as a result. likewise, in my experience having ones own family generates happiness when you compare your current active and colourful life to the one that went before, which can seem grey, dull and selfish by comparison, if only after the fact!

to what end?

those are presumably the MMT theorists.

But that's the problem isn't it, borrowing is falling, at least if you exclude HMG.

housing is not defined just by the price of the asset. it is defined by the cost of aqusition and the yield. Falling house prices imply falling interest rates and therefore lower cost of ownership. So the nominal value of the asset goes down but the cost of leveraged ownership of said asset over a typical 25 year term goes down by a near equivalent amount, or more. given the way the banking system works by securing credit against land, falling house prices imply zirp, for as long as both house prices AND general demand fall then the real cost of leveraged land ownership will remain more or less constant. the only way house ownership cost can rise => rising rates and falling nominal values, is if it turns out there is a more productive use for capital or the nature of capital itself changes.

Agreed. But there is more to life (and the economy) than house prices. What else would change?

Good insight. I'd say that is correct. Property will never be worthless; unviable property will be abandoned (by utilities and buyers). Winners will be those in non-abandonded areas, losers those owning property or working in unviable geographic areas, regardless of age.