Figures today show UK average house prices have risen past the £170,000 mark for the first time since 2008. This is still nowhere near to the peak in 2007 of over £200,000 (Inflation adjusted), but the Bank of England’s commitment to low interest rates (until unemployment is below 7%), coupled with the governments help to buy scheme has led to fears of another surge in house pricing.
We now live in a culture whereby people buy houses as an investment, the value of which they expect to increase at unsustainable rates. Expectations clearly need to be adjusted.
On the banking side, more regulation needs to be enforced. The culture of reckless lending may have been simmering in the background for the last couple of years with tighter capital controls, but is by no means out of the picture. There still exists the huge moral hazard issues of the lender of last resort function, giving large banks the wrong incentives.
If anything, history tells us that we will make the same economic mistakes. Let’s hope Marc Carney has got something up his sleeve in this ‘toolkit’ of his.
A World of Economics 