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March 11, 2007

Comments

Tom Steinberg

This reminds me of Francis Irving and the late Chris Lightfoot who used to take any turn of the pub-based conversation towards house prices as an excuse to suddenly raise their voices very loud to talk about the TERRIBLE NEWS THEY'D JUST HEARD ABOUT THE SLUMP IN CAMBRIDGE HOUSE PRICES, before continuing to discuss whatever else they were actually interested in at a normal volume.

New Economist

Many sociologists think they understand markets better than economists. Some quite possibly do (Granovetter, Fligstein etc). But not you, Will.

It is not true that economists failed to predict a crash in 2000. Stephen King, chief economist at HSBC, did. So too Robert Shiller at Yale. And a few more besides...

As to your hysterical claim that "the market is losing all relation to the 'real' economy of wages and work", I just don't see it.

High house prices reflect a range of factors, including: (1) relatively low real interest rates (2) rising wages and household incomes (3) high net inward migration (4) growth in the number of households (5) restrictions on housing supply. The last point is in part due to planning laws (the green belt, height restrictions etc), and unlikely to change.

Housing cycles are asymmetric - when prices are soft people withdraw supply (unless forced to sell). So just because prices have seen large increases, doesn't mean they will inevitably collapse. The cost of servicing mortgages is only around half that at the time of the last housng market slump, so forced sales are likely to remain fairly limited in number unless we head into recession, and/or the Bank of England raise rates sky high.

So it is all about supply and demand, income and affordability. In other words, the usual market mechanisms at work.

Gabriel M.

Sorry, but "homo economicus" is one of those warning signals which tells me that what follows is a superficial criticism of matters unknown to the author.

If sociologists think that they have something to say concerning economics, one would assume that they would take the time and understand economics, understand model building and try to catch up on, at least, the economics done in the '70s and '80s, rather than regurgitate the same crypto-Marxian b.s.. None of that is present here.

This part...

> "This equals inflation, and it ought, neoclassically speaking, to be banned by the Office of Fair Trading."

was especially funny. Never has a poor grasp of inflation and neoclassical economic theory did collide in such a sublime sentence!

Rhetoric about "homo economicus" and the alleged impotence of "neoclassical economics" have been easy cop-outs for people to avoid having to deal with the real challenged of economics.

Will Davies

New Economist claims that this is "all about supply and demand, income and affordability. In other words, the usual market mechanisms at work". This suggests that (a) there is nothing cultural going on and that (b) there is nothing speculative going on.

In my defence I would say:
a) your method determines exactly this sort of response. What type of market isn't all about supply and demand for you?
(b) housing is now an important part of the financial economy, so I'm not sure your appeals to green belts and the like are sufficient. Are you confident that the laws of supply and demand still pertain once there are ill-informed amateur speculators getting involved in the buy-to-let market and money is being ploughed into 'property ISAs' as an alternative to pension funds?

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