The government has stuck to its idiot view of house prices – it believes they reflect whether enough new houses are being built or not. All the time house prices were rising they told us it was because we were not building enough. They used the rise in prices as an excuse to demand the concreting over of the South-East, against the wishes of many electors whom they attacked as Nimbys.
Now house prices are plunging, on the same logic, the government should be saying it shows too many houses are being built. They should be welcoming the savage cuts they have forced onto the housebuilding industry by their boom/bust credit policies, as that should be the right response to too many houses, visible in the falling prices. They should be scaling back their demands for more construction, which look more and more ludicrous by the day as we watch the housebuilding industry in free fall close down site after site.
Instead, on the BBC this morning prominence was given to a forecast from the National Housing Federation that house prices will rise by 25% over the next five years, and by more in the South-East. This forecast is out of line with the typical forecast of further falls in 2008 and 2009 leading to a substantial drop in house prices, followed by a slow and moderate recovery. The BBC presumably gave it airtime, and on most mentions did not juxtapose it with the gloomier consensus forecasts, because they want to help the government talk the market up. If only it were that easy.
House prices are likely to fall further because the mortgage market has dried up, and because the Treasury and Bank are keeping conditions tight by running off the Northern Rock book and by their approach to interest rates.
I am going to ask some questions of how that forecast was arrived at, and ask Ministers to explain the inconsistencies of their appraoch to housing forecasts and price changes. The government comes across as ignorant of what really makes house prices go up and down, out of control of the money markets and therefore the mortgage markets, but still as determined as ever to force more houses onto the South East than voters want. They should instead reckon on many months of little new building activity and falling prices.