Last month the Royal Institution of Chartered Surveyors suggested the government or bank of England should cap house price inflation at 5 percent a year. Unsurprisingly this was met with universal scorn from the housing industry, estate agents et al and indeed Martin Taylor, an external member of the FPC, said in a speech last week:
I don’t think, personally, that it should be the FPC’s job to stop house prices going up
Of course one does have to ask whether it is the job of the government and Bank of England to keep house prices going up by backing such schemes as Funding for Lending and Help To Buy (and this does not even take into account the suppression of interest rates through QE).
As a supporter of free markets, I think pretty much all government intervention should be avoided as it invariably leads to unintended consequences and inefficiency. Unfortunately politicians feel obliged to tinker with everything despite the fact that they are wholly unqualified to be involved. Margaret Thatcher once said: “The trouble with politicians is we have to speak more often than we have something to say”.
This has worsened with the explosion of 24 hour news programmes desperate for content, politicians brought up on soundbites and an apparent need to fluff their own egos. Unfortunately this has led to some genuinely stupid statements, apparent confusion within parties and mountains being made out of molehills.
Trying to cap house prices was admittedly not a suggestion made by a politician, but it is a brilliant example of how we now think that we can regulate markets precisely (thereby implicitly saying that we can predict what the market will do). The problem is that in the history of mankind, no-one has ever successfully achieved this over a prolonged period of time because the markets are too complex. One simply has to look at the fall of the Communist states and the number of Nobel Prize Winners who have suffered huge losses when their prize winning financial models were found to be inadequate.
Simply let the free market do its job without interference. I, for one, will not be placing a wager that this will actually happen, but hope springs eternal…