Monday, Nov 09, 2009

The house price bubble was the flipside of the credit bubble: official

Tobin tax would destroy London without making the world safer: City AM

Towards the end of a reasonably well-informed article about the "Tobin Tax" and financial instability in general is this blinding insight: "... the housing bubble itself cannot be separated from policy decisions, as strict planning regulations make the supply of housing more inelastic and mean changes in demand are almost entirely reflected in prices" Yup. That's why no politician complained about the credit bubble - because it is a prerequisite for a house price bubble which creates the illusion of wealth in voters' minds and helps you get re-elected.

Posted by mark wadsworth @ 10:41 AM (1291 views)
Add Comment
Report Article


1. cat and canary said...

hmm..i guess debating the pros and cons of the Tobin tax is good, but i'm getting a common theme here..

> separating retail and investment banking is bad for the UK economy

> linking bonusus for senior bankers to long term profit is bad for the UK economy

> taxing financial transactions is bad for the UK economy

anything which threatens short term profit margins of investment banks is apparently bad for the UK economy! :)

who are the taxpayers alliance? Quote from Wiki: "Sixty per cent of donations come from individuals or groups giving more than £5,000."

enough said.

Monday, November 9, 2009 10:59AM Report Comment

2. letthemfall said...

I like the hyperbolic title - the V2 tax, the Daleks-are-coming tax.

I also enjoyed the following quotes:

"The whole idea of a Tobin tax is based on the flawed view that trading – or speculation – is a bad thing. The truth is that it isn’t: it helps the process of price discovery, makes markets work better, enhances liquidity, ensures that resources are priced correctly and generally helps oil the cogs of the global economy."

Good to know that the CDOs, CDSs helped the market work better.

"The idea that we should give up on the stability of the British banking system, when it was maintained through an entire century of wars and depressions, is absurdly defeatist."

And I bet we all thought the banking system was about to collapse last Oct. Must have been too defeatist.

I thought Mr Sinclair's website was rather blandly titled. It' would perhaps be clearer

Monday, November 9, 2009 11:33AM Report Comment

3. dbc reed said...

@ Mark Wadsworth
Would n't want to split the rather thin anti-homeownerist ranks ( n.b a blast against home-ownerist policy appeared in yesterday's Observer letters )but this attitude of blaming strict planning regulations lets the developers off the hook who are hoarding land with ready-to-go planning permissions: enough for 225,000 houses in June 2007 when the Royal Town Planning Institute got out of its pram after continual goading and totted up the declared land banks of the the major developers.God knows how much land is potentially available for development i.e. would get permission if the developers bought it and applied.
There are a lot of people trying to keep up house prices by artificially rationing supply: the whole market in already-built houses for starters
where it is a truth universally acknowledged that if you sit out this down-turn and don't sell your house this,of itself, will help house price inflation on its way to becoming the next bubble.

Monday, November 9, 2009 11:41AM Report Comment

4. cyril said...

This talk of planning regulations is a bit of a red herring. They had a house price bubble in America as well don't forget.

Monday, November 9, 2009 12:44PM Report Comment

5. mark wadsworth said...

Sure, let's all bash the developers, but they don't make the rules, they just make the most of what they are given, they are not charities or anything

They may well have enough planning for 225,000 houses, all very hard fought for when pitted against the NIMBYs, but they know they are only being granted planning permission for 50,000 a year, so they would prefer to build 50,000 a year for the foreseeable future rather than expand capacity massively (pushing up their input costs and pushing down the selling price) and build 225,000 in year one, and then risk standing there empty-handed in year two.

Nothing land value tax man wouldn't be able to sort out, of course ...

Monday, November 9, 2009 12:45PM Report Comment

6. mark wadsworth said...

@ Cyril, the USA is a game of two halves - places without planning laws like Houston had little or no bubble (even after all the people from New Orleans rocked up and built new houses) and places with strict planning laws (or where there simply is no space to build any more, like Manhattan) had massive price bubbles.

Monday, November 9, 2009 12:47PM Report Comment

7. letthemfall said...

Planning laws are important: what developers want is not necessarily in the best interests of the country as a whole. Perhaps the most aggravating feature in the cost of housing is 2nd homes, nothing to do with planning laws but a lot to do with tax treatment.

Monday, November 9, 2009 02:13PM Report Comment

8. mark wadsworth said...

LTF, there's plenty of space for first homes, second homes and third homes.

If they're prepared to pay the LVT, then it's not a problem (the proceeds can be spent on the full-time residents!) - but if the second homers are all NIMBYs then it is a problem!

Monday, November 9, 2009 02:22PM Report Comment

9. letthemfall said...

They almost certainly are nimbys, but covering the country with houses that stand empty most of the time is not exactly efficient use of resources. Sign of a decadent economy perhaps.

Monday, November 9, 2009 05:01PM Report Comment

Add comment

  • If you do not have an admin password leave the password field blank.
  • If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
  • Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
  • Please note that any viewpoints published here as comments are user's views and not the views of
  • Please adhere to the Guidelines
Admin Password
Email Address

Main Blog | Archive | Add Article | Blog Policies