Ray Barrell's picture
Affiliation: 
Brunel University London
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 agree
Confidence level:
Extremely confident
Comment:
A more widespread weakening of the UK housing market would slow consumption growth and hence reduce GDP growth. The initial slowdown could itself be evidence of anticipated slower GDP growth, but it would still feed-back and reduce consumption. The effects could be significant in the short term if the anticipated fall in house prices is fully taken on board by consumers, but it is more likely to be a continual drag on growth as the negative implications for incomes of exit from the EU slowly become clear. In addition, weak house prices may reduce entrepreneurial activity and business investment, as many small ventures are initially financed on the back of loans secured on residential property. Housing wealth affects consumption for the same reasons that government debt is part of wealth, as Barrell and Weale (2010) discuss. Barrell et.al. (2015) present evidence of the relative impacts of financial and housing wealth on consumption in the UK, and show that housing wealth has larger and more significant effects on consumption. These effects can be noticeable, as we have seen in the last three housing cycles in the UK over the last 30 years. The impact of the use of residential property as collateral on investment behaviour is discussed in Bahaj et al (2017). They suggest that house price falls could noticeably and negatively affect investment growth in the UK. Bahaj, S., Foulis, A., and Pinter, G., (2017) ‘Home Values and Firm Behaviour’ Bank of England, mimeo Barrell, R., Costantini, M., and Meco, I., (2015) ‘Housing wealth, Financial wealth, and Consumption: new evidence for Italy and the UK’ International Review of Financial Analysis vol.42 pp.316-23 Barrell, R. and Weale, M. (2010) 'Fiscal policy, fairness between generations, and national saving'. Oxford Review of Economic Policy, 26 (1). pp. 38 – 47

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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:
Agree
Confidence level:
Very confident
Comment:
We should expect more moderate real house price growth in the UK over the next decade than we have seen over the last decade. Housing supply might rise. Housing demand growth will moderate, in part because the reality of the costs of exiting the EU will begin to be felt. House prices in the UK have been strong in recent years in part because population has been rising whilst housing supply has not. Migration has been one factor behind increased demand, and we will see it decline on exit from the EU. The impact on migration and on housing markets will be greatest in London and the South East as financial services incomes and employment contract noticeably. It is not surprising that we are already seeing house prices fall in London and the South East, and we can expect that they will fall relative to those outside the area. It is not very likely that prices will fall significantly elsewhere.

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:
Agree
Confidence level:
Confident
Comment:
Asset prices must reflect the future discounted value of earnings. Low interest rates driven by loose monetary policy lead to high asset values. However, low real interest rates over the last few years in the advanced economies are not mainly the result of central bank policies, and these have contributed to high asset values. As such, high asset values may in part be sustainable if real interest rates stay low.

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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:
Disagree
Confidence level:
Confident
Comment:
Serious risks to the world economy can come from excess debt. In the advanced economies public debt is generally safe, and has been falling. Private debt increases in the advanced economies are less worrying now we have a better capitalised banking system than in 2007. Asset price inflation has been mainly in equity markets, and as we saw with the collapse of the dotcom bubble, this is not a massive problem when it is reversed. There are always risks, but they do not look excessive.

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:
Strongly agree
Confidence level:
Very confident
Comment:
Removing exchange rate volatility encourages trade and investment, and this gain outweighs any costs for most countries. The euro cements this gain. It also removes power from local elites who use devaluation to their advantage, in part to avoid difficult decisions on structural change. Reducing expected volatility is the core reason for having a currency area. It has produced benefits, but perhaps some countries joined before they were ready.

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