this guy misses the point (although i havent been able to find his original article, do you have a link?)
house prices are increasing , not just because of low interest rates, but because people are getting richer and are buying more expensive houses, or spending money on renovations to increase the value. raising interest rates will not necessarily stop this, because if people can afford to pay their mortgages, they will continue to do so. in fact what weale is suggesting will only "contol" the housing boom by
1) creating panic and
2) increasing defaults/ repossessions etc; ultimately creating the crash that he's claiming he's trying to prevent

Hi,

Isn't that the point of his correction? Isn't (3) saying that interest rates aren't, in fact, the answer, because they'd need to be so high (presumably because of all the points you've made in your comment) they'd be ultimately very damaging? I think (4) is his answer... although there's not a whole lot of detail re. "tax treatment" is there? And who's going to stop the landlords buying up the new cheaper property?

i stand corrected, but truthfully the NIESR have been advocating high interest, or at least appear to be advocating higher rates for a long time, so it's not surprising that Weale may have been misquoted or at least misunderstood by the mainstream press. anyway, why is Weale and so many other prominent economists continue to lambast rising house prices as a "problem". my argument is mainly that house price inflation is primarily a byproduct of an expanding economy, which is what we're in the midst of today. take a look at the employment figure released this morning
http://www.statistics.gov.uk/CCI/nugget.asp?ID=12

Did you see this?

http://www.theratandmouse.co.uk/weblog/archives/2007/02/niesr_in_intere.html

8% was a climbdown!

I understand what you're saying, and it's a view I've some sympathy with. I guess the points for discussion are whether housing is or should be a purely economic issue, or is it social? (Just as I find it hard to accept that water and power are just "services" like dry-cleaning and lapdancing.) And what are the repercussions when people allow themselves to be over-mortgaged and inflation forces the B of E to put up ratese?

While Martin Weale is correct to point out the damage to the social fabric of the country caused by the very high levels of house price inflation I do not agree that raising interest rates is the only solution.There is a very clear correlation between mortgage debt and house price inflation:during periods when mortgage lending surges there is always a corresponding jump in HPR,so interest rates would clearly reduce HPR if raised sufficiently.However,his report ignores the other solution:requiring mortgage lenders to lend responsibly.Britain should fall into line with the majority of other industrialised countries and have a limit of around 4 times the income of the higher earner PLUS checks on claims of income made in mortgage applications should be made by a government agency (a very large proportion of applicants exaggerate their income in order to secure a larger mortgage,I am reliably informed that it is commonplace for borrowers to take out loans in excess of ten times their annual salary)
It is worth remembering that the 4 countries afflicted by housing bubbles (the UK,US,The Netherlands and Australia) are unique in that they have no effective limitations on credit.