The Boom is over, the price must yet be paid

Conclusion of an article by Ashley Seager in the Guardian, 19 February 2007 sent by Bruce McKenzie

But Danny Gabay, head of Fathom Consulting, says falling inflation this year is likely to push real interest rates up sharply to levels not seen for many years, something that could squeeze the housing market. He also thinks falling rental yields will reduce the attraction of buy-to-let.

"Coming on top of a significantly higher debt burden, this year should provide the housing market with its sternest test in many years," he says. "We retain our view that eventually the excess valuations embodied in house prices will bring about a correction in expectations and hence prices." It is worth reflecting again, after a decade surging house prices, what it all means. We do not get richer as a society from rising house prices. We merely transfer a burden to future generations who have to pay more for their houses. We shut out the have-nots who cannot tap their parents for a deposit. We lock min a permanent underclass who have no hope of ever getting on to the property ladder.

Need this have happened? No. Residential property in Britain jumped by 410bn in value last year. Only about 2% of that gain was taxed by stamp duty or inheritance tax. Would prices have risen so far so fast if land values were taxed more? No.

The discussion of land value tax, which has been around since the days of Adam Smith and David Ricardo, is gaining ground again as people reflect on the absurdities of the housing boom.

Next week sees the launch of an edited and abridged version of the classic 1879 work by the American economist Henry George, Progress and Poverty*. George is widely seen as the father of land value taxation and his ideas are as relevant today as they were in the aftermath of the US civil war. * Progress and Poverty, Henry George, edited by Bob Drake (Shepheard-Walwyn).