Index

Book review

Review by James Robertson (http://www.jamesrobertson.com/news.htm)

1989 boom in the land and housing markets. Now, in this book, he describes and explains more fully the series of 18-year business cycles that can be traced back in Britain at least to 1776 and arguably as far as 1600 - with the dot.com boom and bust of a few years ago as a "mid-cycle recession".

He confidently predicts that the trough of the next recession will be in 2010, eighteen years after 1992.

This book contains a great deal of important factual material. How astonishingly more profitable, under prevailing policies, investing to achieve capital gains in land and existing property has been than investing in new production and construction! When Honda, the Japanese car-maker, revalued its plant site in Swindon it found the value of the land had risen from £6 million in 1985 to £200 million in 2003. Its investment return from buying the land had been much higher than from making the cars. Over a longer term, the rate of increase in the price of houses has hugely eclipsed increases in other products and people’s earnings. A particular 5-bedroom house in Chelsea in London was sold for £1,000 in 1910; ninety years later it was worth £4.5 million, an increase of 450,000%, nearly 37 times greater than the increase in the price of a basket of basic items like bread and potatoes over the same period.

Harrison shows that piecemeal attempts to deal with the economic and social problems caused by high house prices are almost always perverse and make the problems worse. For example, subsidising the cost of borrowing money to buy houses in particular areas for public servants like the police or teachers or nurses immediately encourages local landlords to raise their prices, channels the extra money straight into their pockets, and makes it more difficult for other local people to get on to the housing ladder.

The following quotes come from the book:

"The failure to eliminate or control the business cycle, despite repeated attempts to do so, suggests that the received wisdoms do not lead governments to remedies that work. A second reason is that economics, as it is employed today, is seriously prejudiced by the dilution of some of its key concepts. Economists routinely work with economic models that treat the world as if it were composed of two factors – labour and capital – instead of the three-factor model favoured by the classical economists. This disembodies the economy from its spatial context. That, especially when we are concerned with the impact of the housing market on people's lives, creates analytical problems. For land is the key piece of the jigsaw that is the complex economy." What then follows is the historical evidence Harrison has brought together from researchers who either failed to grasp the importance of their own compiled data or were ignored because their findings conflicted with conventional wisdom. "The need for the long-term perspective is crucial," he writes, "for we are dealing with events that recur time and again". Therefore, the causes must be the same across time and for different regional and national economies: "If the business cycle is characterized by a pattern that is regular in its periodicity and scale, the probability is that we are searching for a single, or a very few related, causes, and that those causes are embedded in the foundations of the system."