Housing recession – again!

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Shame about the housing recession both sides of the pond. Over in the US of course, this was largely created by the strategic imcompetence of banks’ whizzy sub-prime lending initiatives, though doubtless made worse by mindless economic policies. Here in the UK, blame between these two is probably more or less reversed – yes there was stupid lending, but stupid economic policy stoked up the bubble in the housing market so the burst was bigger. … not for the first time!

Last time Govt created a crisis was back in 1988, when tax relief was given on mortgage interest for the first £30.000 of the loan [seems tiny now, but was quite a bit of money back then!] – unmarried couples could even claim it twice!. Then Govt announced the removal of this popular subsidy with around 17 months notice. Couples rushed into the market creating demand which drove prices up, only to see them collapse after the withdrawal of the double relief.

In effect then the 88-92 price fall was created by government policy artificially stimulating and removing short term demand. This is very different from the situation we see today where the problems are largely at the other end of the system in the banking and loans market.  

UK house prices 1975 to 2006 (adjusted for inflation)
UK house prices 1975 to 2006 (adjusted for inflation)

Given the current anguish in the banks, and the resulting tourniquet on intra-bank and consumer lending, it rather looks like the banks too were lacking any professional strategy capability. So where did their senior teams learn the strategy skills? … I wonder how many of them have any formal training in it. We know they have no professional qualifications, because none exist.

Kim

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