Re:Why younger people can’t afford a house
by pjc50 on Thursday April 14, 2016 @09:26AM
(#11496444)
Indeed. Interest rates affect (a) asset prices and (b) business investment.
Low rates are supposed to affect the economy to increase inflation through (b): businesses buying inventory, building factories, developing new products, etc. This "transmission mechanism" is now broken because there is a shortage of suitable demand. Businesses do not want to borrow to expand because there is no good prospect of a return on the expansion. So we can't push on that rope.
Low rates caused a property boom which resulted in a temporary economic boost to several European countries (especially Spain and Ireland): the cheap money ended up in the pockets of construction workers, who spent it.
We need some means of diverting the cheap money from (a) to (b). Possibly a tax on leverage, if that's feasible.
In the short term, the UK should get a proper property tax and apply punitive rates to property owned by non-EU individuals or companies.
Low rates are supposed to affect the economy to increase inflation through (b): businesses buying inventory, building factories, developing new products, etc. This "transmission mechanism" is now broken because there is a shortage of suitable demand. Businesses do not want to borrow to expand because there is no good prospect of a return on the expansion. So we can't push on that rope.
Low rates caused a property boom which resulted in a temporary economic boost to several European countries (especially Spain and Ireland): the cheap money ended up in the pockets of construction workers, who spent it.
We need some means of diverting the cheap money from (a) to (b). Possibly a tax on leverage, if that's feasible.
In the short term, the UK should get a proper property tax and apply punitive rates to property owned by non-EU individuals or companies.