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Hammond Should Have Made An Autumn Economic Fashion Statement

28/11/2016 14:07

If you set a goal, you'd like to achieve it. Sounds reasonable. How about if you don't make it? That can be useful as well. Take the Autumn rugby internationals.

Would Eddie Jones prefer a clean sweep over the Southern hemisphere? I'm sure he would. Good target. But what if the target for England RFC was merely to play in every game and that's it? It doesn't matter whether they win or lose. Seems kind of stupid, doesn't it? But that's exactly what the Government is doing with the Bank of England's (BoE) inflation target.

Inflation as a label is simple. It's an increase in prices. The BoE's job is to aim for 2%. A bit of inflation is a good thing. It signals positive activity by the country. Too much, however, is Venezuela-like disastrous.

So what's the prob? Easy. If you look at any source, they'll tell you inflation is well below 2%.

Right around the country, and especially in London, we know that inflation is far higher than the headline claim. For what? On the most important thing for most people: their homes.

House price inflation is high. As the Land Registry states, it's up 7.7% on last year.

Alone, this wouldn't be a problem. Things pop up and down. But house price inflation has marched on like Leicester did to the peak of the Premier League.

Between 1991-2012, house prices grew by 428%. In London alone, house prices have risen 85% since 2009. In a banana republic, that's how food prices go up. And it's hurting everyone.

Everyone knows about struggling first-time buyers or families trapped in smaller homes, unable afford larger homes for their families. Rents have also followed house price inflation like a stalker on heat.

On top of this, wages haven't kept pace. In fact, for plenty of people, they've gone belly up and wayward.

This is a slow-burning disaster.

If people can't afford homes, they can't afford to live. The cost of living, as the official 'inflation' stat above indicates, doesn't mean much if money can't provide for a stable home in the first place.

Instead of rewarding people for useful activity -- jobs or creating businesses -- homes are piling on paper value without, bar the odd the conversion, doing anything truly special with it.

House price hyperinflation is a terrible waste. If we're saying the best thing you can do for your wallet is to buy a piece of masonry and squat in it watching I'm a Celebrity marathons, then there's no surprise the UK has a productivity problem. Pay, which is how most people earn their money, has to pack a meaningful punch.

House price hyperinflation sucks money out of people's pockets -- bigger deposits or fatter mortgages -- that could be spent on better things. It's also a false economy for the people who supposedly 'benefit' from them. If you're simply trading up to ever higher prices, you're not seeing any real gain from it at all. All you're really doing is unwittingly pulling up the ladder from the assetless people at the bottom.

And the evidence bears this out. Home ownership is collapsing like a Selasi cake. If we keep going like this, the only people who will own their homes, and the security this brings, will be few in number. We used to call them aristocrats. Maybe the term and the real Downton Abbey will return.

If inflation is 1% but house price inflation is 7.7%, then inflation, as we should see it, is not 1%. It's a noxious mirage.

How do we fix it? It's a complicated question. Housing isn't the same as Marmite (although I do swear I need it to live). Property should be recognised as a different kind of thing. It should be seen as a home first, not an asset. What should, however, be recognised is that house price inflation is inflation and reported as such. End of. Hopefully, it will be the kick they need to do something useful about it.

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