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Dave Beans

How Norway "crushed Its Housing Bubble"

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British house prices have fallen 6pc since peaking in November 2007 at an average of £181,618. The average in March this year was £169,124, according to the Land Registry. This is based on hard sales data, unlike the asking price indexes used by the property companies. It is backward looking but not massively so. The fall in real terms must be around 25pc by now. This is hardly yet a bubble.

It would be folly for the Bank of England to raise interest rates purely in order to break a London boomlet at time when broad money (M4Lx) contracted at a rate of -3.2pc over the last three months. Or indeed, when UK economic output has barely recovered the lost ground from the Lehman crash, and when much of the manufacturing hinterland is still in near slump.

Such action would push sterling through the roof before recovery was secure. It would lead to an even more calamitous deficit in the current account, ceteris paribus. The deficit is already running at over 5pc of GDP on a quarterly basis (the worst in the industrial world).

The proper answer to the housing shortage is to build houses, if necessary by returning full power to councils to do it themselves. But if the Bank wishes to contain credit, it should learn from Norway’s success. Instead of raising rates, it has used “macroprudential” tools. It cut the loan-to-value ceiling on mortgages from 90pc to 85pc. It forced the banks to raise to capital buffers further.

The Norges Bank has recommended a 1pc counter-cyclical buffer based on its view of what constitutes a safe level of credit growth. Contrary to claims that these tools never work, they worked splendidly, as you can see from this chart today from HSBC’s David Bloom.


Norway’s house price boom stopped it its tracks. The krone fell. Collateral damage was limited. The Banque de France explores the whole experience of such policies across the world in its latest Stability Report.

It includes this paper from the Hong Kong Monetary Authority’s Dong He, showing that higher stamp duties were indeed successful in reining in house price spirals. There have been trials all over Asia. They are not perfect. But they do work. It is time for the Bank of England to stop trying chip out of bunkers with a driver.

Edited by Dave Beans

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Ive spent a bit of time in Norway over the last few years and property is reasonable in comparison to wages considering the global property boom.

You can get twice the property in Stavanger then Aberdeen, Stavanger being Norways equivalent oil city.

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Why do all these talking heads see everything in the context of the peak? "Theyre 6% BELOW peak so obviously not a bubble."

If they went even more totally batshit insane crazy, intergenerational mortgages japan style in 2006, and peaked at £400,000, and fell to £380,000, presumably that would be 'definitely not a bubble' too?

Prices are 40% above historical norms, ergo, they are still in a bubble, and well above the 1989 bubble in real terms.

Take the ponzi scheme of financing away, and a house costs 50 or 60 grand. Thats all the damn things cost to build.

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  • 406 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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