Andrew Mountford's picture
Affiliation: 
Royal Holloway
Credentials: 
Professor of economics

Voting history

House Prices and the UK economy

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Question 2: Do you agree that a more widespread weakening of the UK housing market will slow UK GDP growth significantly?

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Answer:
Strongly disagree
Confidence level:
Confident
Comment:
No the UK economy would be much better off if house prices were significantly lowered. It would improve social mobility and investment efficiency. This is not to say that the process could not be mismanaged and so cause reduced investment and a banking crisis but this does not need to happen. Measures to reduce house prices should be taken in a policy coordinated way that ensures that the banking system remains stable and maintains overall investment during the process of house price adjustment. Much could be achieved via the tax system by increasing taxes on housing speculators (empty house tax), and on home ownership (i.e. an income tax on the imputed income from the rental value of home ownership), together with a large public sector building program where purchased land is valued at current use ( so that land speculators do not profit from this public investment -see recent Guardian article) . However it is difficult to see this happening in the short to medium term due to the widespread belief that this is politically impossible due to the voting behaviour of homeowners and the lobbying power of speculators. However in the longer run as the percentage of property owners in the voting public declines then this necessary large structural change will become more conceivable. https://www.theguardian.com/money/blog/2017/nov/18/house-prices-land-prices-cheaper-homes

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Question 1: Do you agree that the phenomenon of declining house prices will ripple out from the London property market leading more UK regions to experience falling prices?

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Answer:
Neither agree nor disagree
Confidence level:
Confident
Comment:
You have a rare talent for choosing an important topic and then focusing on its least important aspect. The key issue about UK house prices is not whether they will rise or fall by a few percent in the next few months but the damaging structural role that housing plays in the UK economy. The housing market is (i) inhibiting social mobility - (transferring resources from the working poor to the more prospereous, with home ownership increasingly affordable only to those with family backing i.e. wealth), (ii) threatening financial stability (as UK domestic bank business models are still heaviliy reliant on mortgage lending (which is about two thirds of major UK banks’ loans to UK borrowers)) and (iii) distorting UK investment as the dependence of UK domestic banks' balance sheets on UK housing makes them an asset that cannot be allowed to crash for systemic reasons (which therefore increases its desirability). This together with suboptimal supply - due to the collapse in public sector house building over recent decades- and excess demand from its role as an international safe long term asset, means UK house prices are significantly too high. The UK housing sector is seriously distorted and is a drag on UK growth. http://www.bankofengland.co.uk/publications/Pages/fsr/2017/jun.aspx

Global risks from rising debt and asset prices

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Question 2: Is the loose monetary policy of major central banks responsible for the recent increase in global leverage or asset values?

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Answer:
Strongly agree
Confidence level:
Confident
Comment:
Another multidimensional question asking for a one dimensional response. Yes there is certainly evidence that in the UK at least quantitative easing is fuelling a house price bubble which is a risk to the UK financial system. However increasing liquidity after the 2008 financial crisis was clearly the correct policy response in the short term. But surely it should have been possible to implement an accomodative monetary policy alongside a stricter regulatory structure that ensured that the increased liquidity was not used to fuel a speculative bubble.

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Question 1: Does the world economy face heightened risks arising from an excess of public and private debt and/or inflated asset prices?

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Answer:
Strongly agree
Confidence level:
Confident
Comment:
As ever the question asks for a one dimensional response to a multidimensional question but from reading the financial press we do seem to be back in a similar situation to that in the leadup to 2007-8 crisis . However this is not due to a build up of public debt but due to a failure to address the bias in the financial system towards the taking of excessive risk. Fundamentally the financial system hasn't significantly changed since 2007. The Banking sector is still highly concentrated and so bank failures will have systemic effects. In the UK the banking sector is still vulnerable to a house price correction (and so interest rate hikes) as Bank business models are still reliant on mortgage lending which is about two thirds of major UK banks’ loans to UK borrowers . I also read that Eurozone banks are similarly vulnerable to interest rate rises. The only changes from 2007 stem from the increased regulation of Basel III and the Vickers report reforms in the UK. However it is difficult to have confidence in these as (i) Vickers himself felt the increased capital requirments have been watered down and in any case are subject to the same off balance sheet manipulations as before. Basel III also seems to be just more of the same (see e.g. Wikipedia criticsm) (ii) the ring fencing of retail banks in the UK may make them even more vulnerable to UK property market swings and (iii) the disciplining effect of bailinable bonds on lending behaviour is dubious at best. So its very much a case of plus c'est change https://www.reuters.com/article/us-eurozone-banks-ecb/fifty-one-euro-zone-banks-vulnerable-to-rate-shocks-ecb-says-idUSKBN1CE0KI https://www.ft.com/content/a56772c4-6554-11e7-8526-7b38dcaef614 http://www.bbc.co.uk/news/business-35573225 http://www.bankofengland.co.uk/publications/Pages/fsr/2017/jun.aspx https://www.bloomberg.com/news/articles/2017-10-03/fed-s-next-bank-cop-seen-as-icebreaker-in-basel-capital-standoff https://en.wikipedia.org/wiki/Basel_III

Juncker's State of the Union Address

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Question 2: Do you agree that the euro has had more benefits than costs?

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Answer:
Neither agree nor disagree
Confidence level:
Not confident
Comment:
This depends very much on your view of what the future would look like if European states did not co-operate (i.e. pool their sovereignty) on macro matters (defence, tax , money, tariffs, market regulation). The more apocalyptic your view of this possible future, the more you will believe that the costs of cooperation are outweighed by the benefits, whatever your criterion function.

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