Polly Toynbee says policy-makers must do something to curb the "insanity" of rising house prices. I sympathize. But there's a point here that most people are missing. It's that high house prices are not just a problem in themselves but also the result of a wider malaise in the world economy.
High prices might be - in part - a product of secular stagnation. This seems an odd thing to say; if people expect slower growth in incomes, house prices should be lower. However, three mechanisms might offset this:
1. Lower real interest rates. These naturally raise house prices by reducing long-term borrowing costs. It's no accident that the house price-income ratio has trended upwards since the mid-90s at the same time as real interest rates have fallen.
2. A dearth of investment opportunities in the real economy diverts cash towards other assets, such as housing. As both Hayek and Marx noted, when profits in the real economy are low, we get malinvestments. And as Paul Krugman says, in a stagnant economy bubbles are one way to create jobs. If we can't get rich by making stuff, at least some of us can get rich at the expense of younger generations.
3. The Bank of England is loath to fight rising house prices in part because the economy is still too fragile to cope with higher interest rates, and in part because quantitative limits on mortgage lending would deprive banks of an easy source of profits.
These three mechanisms are reinforced by another. The same lack of safe assets in Russia, Asia and the middle east that has helped drive up bond and gold prices in the last 15 years has also raised central London house prices; folk used to buy houses when they were hopeful, but now some do so when they are fearful.
I don't say all this to deny that rising house prices also have domestic sources, in our silly planning laws and even sillier love affair with "bricks n mortar". And still less do I deny that prices might eventually fall a lot. I merely want to suggest that rising house prices are not just a disease but a symptom of the crisis of capitalism.