The "loan to earnings ratio", that a lender will give a first time buyer, is multiplied – just the same as bank deposits to lending ratios, through the second hand market. The price of their second purchase is set by the factors that governed their entry into the housing market in the first instance. Take away the first time buyers; the market collapses.

Let's hear it for LAND VALUE TAX. Come on John, you know it makes sense.

I agree with JR; housing borrowing is small compared to government borrowing.

This may mean that the Spanish are well off or that their houses are more affordable, or that most of their market is buying for use more than speculation. It suggests that allowing building in Britain to climb well above the replacement rate (1% of the market or 290,000) would not exercise a massive downward pressure on prices, which indeed is what John suggested in reply to my first post. On the other hand it would certainly exercise some pressure. Also increasing building by even an extra 100,000 houses would add £20 billion (nearly 2%) to national productivity, plus some multiplier effects.

If house prices aren't going to fall fast if we build more the idea that it will be destabilising & that there is a real shortage of demand is wrong. If they are then it will become easier for people to get on the housing ladder. I think the first is true in the short term, since increased supply would be only at most, a few % a year. That in the long term it would be 2nd case since increased supply would be substsntial over a decade.

Reply: Government borrowing is large and so has a large impact on the market. The consturciton of new homes is small compared with the stock and sales of second hand homes, so it has little impact.

This is very emotive language, and I think unfair. By surface area, the South East is only ten or fifteen per cent developed. And if you were a housebuilder, where would you most like to build?

What we need is liberalisation of planning laws (the carrot) and Land Value Tax (the stick).

This happens with old masters, stamps, comics, tulips (in medieval Holland), oil over the current short term etc. The drop in house prices is because people are deciding they aren't going to keep growing at 15% a year.

A century ago, before all the regulation, houses cost not more than 25% of current prices compared to the retail price index. There is no technological reason why they couldn't again, if government stopped preventing them being built, or preventing mass production methods. I have no doubt that at non-monopolist prices there would be no shortage of buyers & a housing boom that would float the whole economy.

It is inevitable that, if the state gives people power to prevent their neighbours using their land, it will be used. It would be equally inevitable that if the state gave neighbours the power to prevent you owning a 4×4, or smoking at home, or having sex with somebody you aren't married to some busybodies would use that power. The state should not give such power in the last 3 instances & should restrict the first to areas of historical interest our outstanding natural beauty.

Reply: Most of the homes for sale are second hand – they determine the price level, which in turn depends on credit availability.