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How Do House Prices Boost The Economy?

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I've read countless posts here about how the UK economy is propped up by houseprices. I want to know is how do high house prices help the economy?

All I can see is that people borrow excessive amounts from the banks which obviously enriches lenders and also benefits the people at the top of a chain who sell and pocket the cash. However, everyone else just takes on huge amounts of debt.

How can the economy be good if nearly half of the money you earn is given to the lenders? It leaves less spending money for other parts of the economy.

I'm not very good at economics so can someone please explain?

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I've read countless posts here about how the UK economy is propped up by houseprices. I want to know is how do high house prices help the economy?

All I can see is that people borrow excessive amounts from the banks which obviously enriches lenders and also benefits the people at the top of a chain who sell and pocket the cash. However, everyone else just takes on huge amounts of debt.

How can the economy be good if nearly half of the money you earn is given to the lenders? It leaves less spending money for other parts of the economy.

I'm not very good at economics so can someone please explain?

I don't know that it's high house prices, as much as rising house prices and high transaction levels:

- owners borrow against their ever-more valuable asset and so consume more

- ever more commission to EAs and mortgage brokers (and more tax for the treasury)

- lots of business and jobs in the building/development sector.

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I've read countless posts here about how the UK economy is propped up by houseprices. I want to know is how do high house prices help the economy?

...

I'm not very good at economics so can someone please explain?

You are mistaken.

You are very good at economics. You just noticed something that a very large proportion of the UK population have completely failed to realise - high house prices do not help the economy. :)

I think the usual argument trotted out by e.g. Kirtsy Allsop or whoever is that the housing market in the UK is quite a big section of the economy - all the builders, decorators, estate agents, landlords, letting agents, surveyors, solicitors and the rest of the property-market machinery that keeps a lot of people in work. It's not so much the house prices themselves as the ongoing market activity that matters.

On the other side of the coin, people borrowing money against the inflated value of their houses does have the effect of temporarily propping up the economy, because they can go out and spend that money in the high street. But, as you've noticed, this can only happen at the expense of people making interest payments in the future.

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Guest DissipatedYouthIsValuable
I've read countless posts here about how the UK economy is propped up by houseprices. I want to know is how do high house prices help the economy?

All I can see is that people borrow excessive amounts from the banks which obviously enriches lenders and also benefits the people at the top of a chain who sell and pocket the cash. However, everyone else just takes on huge amounts of debt.

How can the economy be good if nearly half of the money you earn is given to the lenders? It leaves less spending money for other parts of the economy.

I'm not very good at economics so can someone please explain?

You have perfect clarity, yet you are unsure of yourself, grasshopper

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yes at the start and no at the end.

However to pay for those prices people need higher wages so people look for better jobs paying more, this is when labour becomes too expensive and jobs become Outsourced to be more competitive in this global economy. Once that happens the government needs to tackle the basket of good which has been happening over the past 2 years to give the illusion that you are rich when infact you getting poor.

So if rates are 5.75 you really need to earn more than that per year as thats the lose of the value of your money per year, thats why banks add another 1-2% on top of that, as that is there gains while, the 5.75 level is just making sure they dont lose out on the value of there money. So when you look at it your losing money thats why banks take there time upping savers rate because the month they gain the difference between 5.75 and 6% adding that to the already gain of 2% making it 2.25% gain to there profits.

Inflation is the lose of Purchasing power with your money, the base rate is the lose amount of money value inflation 2 different things.

Edited by crash2006

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