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  • Property-a-holics

    MPC Member, Kate Barker, responds to the Spectator Inquiry

    So - what went wrong with the British housing market? I interviewed Kate Barker, the economist and Monetary Policy Committee member, yesterday as part of The Spectator’s ongoing inquiry into the causes of the recession. Many thanks for your questions. As she is an MPC member, her words can come out at regulated intervals – ie, we have to run it today or not at all. So here are the top half dozen points. A full transcript follows.
    1. Inflation targeting is not enough. “It happens that in the early years of inflation targeting, it did produce a stable economy. But I think it’s now clear that it can’t, by itself, produce a stable economy ... Do I think we should have perhaps looked a bit more at some of the money indicators?’ Yes, possibly that’s true.”
    2. On Gordon Brown’s 2020 target for housebuilding. “The fact that the government announced this big target for a long way out, well, I can understand why they did it in a political sense, but of course that’s not very flexible to circumstances. Of course, two things have changed since they announced that. One is that one might feel differently about demographic prospects because you might feel that migration isn’t going to be quite so large...”
    3. House prices will rise again, as mortgage become more generous. “The big slide down to 75-80% [loan to value requirement] may be overdone. So I would expect the mortgage market to move. I expect house prices to move up again.”
    4. Her remit never allowed her to look at the causes of the demand for housing – just supply. "When I wrote the report I didn’t believe – and I certainly didn’t believe so for the last couple of years - that the whole reason that house prices were rising was because housing was undersupplied ... I’ve always thought it stemmed much more from demand factors. Particularly from mortgage and finance factors."
    5. There’s no point banning 100% of 125% mortgages, as some (ie, the Prime Minister) have suggested. "I think, I don’t want to have a completely unregulated mortgage market with banks unregulated in what they do and the way they behave. But I’m not personally convinced I want to say we’d absolutely never have 100% mortgages. You might want to have rules about the averages across the book - all that kind of thing. Rather than saying 'no never' because personal circumstances vary enormously."
    6. It was not inherently risky that UK personal debt rose to 180% of income – the highest any G7 country has every known. "To know whether it’s inherently concerning would require you to know what the prospects were of all those households paying back the money."
    UPDATE: Here's the complete transcript: THE SPECTATOR
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