Monday, October 4, 2010
The video is heavy duty stuff
"If we instead based the level of debt on the income-generating capacity of the property being purchased, rather than on the income of the buyer, then we would forge a link between asset prices and incomes that is currently easily punctured by rising debt. It would still be possibleâ€“indeed necessaryâ€“to buy a property for more than ten times its annual rental. But then the excess of the price over the loan would be genuinely the savings of the buyer, and an increase in the price of a house would mean a fall in leverage, rather than an increase in leverage as now. There would be a negative feedback loop between house prices and leverage. That hopefully would stop house price bubbles developing in the first place..."