Rising house values – just stop blowing up the balloon!
- rpwills
- Oct 19
- 2 min read
It’s commonly accepted that house prices have risen far faster than earnings making house purchasing a major problem for many particularly those on lower incomes. In 1986 the average house was valued at £36,000. If house prices had increased in line with inflation the average value would be £104,193. In 2024 the actual value was £334,000.
The blame game
Rising house prices are often used as an issue in discussing intergenerational inequalities, with baby boomers blamed for increasing prices. In reality the forces contributing to rising values are beyond the control of any age group and the increased values are illusory.
Much is made of the benefit of rising house values to owners, although for most who when they sell are in the process of buying another property, do not actually gain. The increase in value is in reality an illusion. Owners gain if they bought another property some years ago and then sell converting the value to cash, which can be spent or saved. Some owners gain by moving from a high value area to a lower value area in the process either paying off a mortgage or gaining cash.
Policy follies
To deal with what some commentators consider ‘unearned’ increases in asset values, a number of policies are invoked including the use of capital gains tax, inheritance tax and changing council tax rates. All of these suffer from a fundamental flaw – they seek to offset the rise in values rather than addressing the causes of those rises.
Why rising house values
The evidence points to several policy changes that have pushed up house prices. These are:
The move away from building societies to banks to provide mortgages;
The impact of low interest rates after the 2008 financial crisis, which pushed up asset values;
The use of quantitative easing to boost the economy after the financial crisis;
The growth of investors buying property either for buy to let or as assets.
What is not the cause of rising house values is a lack of supply – that’s essentially fake news.
What is to be done?
The aim should be to stabilise house values. To achieve this goal requires a number of policy changes. These include:
Adopting Steve Keens proposals on developing a Property Income Limited Leverage scheme and establishing an Affordable Housing Authority. At the same time limiting the market to those seeking a property to live in rather than those using property as an asset;
introducing higher rates on income tax to reduce the purchasing power of high earners;
Banning the use of remortgaging an existing property to purchase another property.
Conclusion
If appropriate policies are pursued it might be possible over time to stabilise house prices so that they increase in line with general inflation or fall slightly in real terms. Its best to stop inflating the balloon rather than seek actions to cut its size.
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