I just got an e-mail from Newsnight; it seems tonight they will be debating whether we need a house price crash in the United Kingdom.
I think the answer to that is:
But crash is quite a harsh word. I think correction is more pertinent. We need the market to return to a state of sanity, where a professional such a policeman or a nurse can afford (on their own salary without government help) something bigger than a 1 bedroom flat.
To fix things in the longer term…
We should loosen planning laws to allow the market to create enough supply to meet demand. There is plenty of land available; only 8% of the UK is urban, half that of the Netherlands, and lower than Belgium, West Germany and Denmark.
We should encourage larger family homes with gardens to be built. Only 2% of the population aspires to live in a flat, and yet half of new homes built are now flats. Houses with gardens are better for bio-diversity than even an open green field.
Britain has the smallest and oldest houses in Europe, and despite advances in technology recent new builds are even smaller.
We should scrap shared equity schemes that matters worse by effectively propping up the market with tax payers money. If people stopped buying because they couldn’t afford to, then developers would be forced to lower prices.
The Bank of England should target money supply growth when they target inflation.
Banks should not be allowed to lend more than three and a half times income.