One of the reasons I gave up being a full-time business journalist in favour of a career in investment was the fear that I might be falling prey to the all-pervasive cynicism to which so many members of the media sadly seem to succumb over time. Excessive exposure to the doings of government can have that effect on you. I could not resist a wry smile however at seeing the attached chart, published by the economics pundits at Capital Economics. It shows the close correlation that exists between house prices and the political fortunes of the party currently in power. As might be expected the relationship appears to be both powerful and close, and, I fear, is not at all accidental. Political party strategists know full well that consumer confidence, in which rising house prices are the key component, holds the key to earning electoral victory.
I am not saying that the Government’s Help To Buy scheme is solely designed to help create a mini-housing boom ahead of the next scheduled general election in 2015. But the following facts are not in doubt: (1) George Osborne is a highly political Chancellor, with overall responsibility for the Conservative Party’s election strategy; (2) two years before an election is traditionally the point at which Governments start to plan their campaign strategy for the next visit to the polls – if they are ever going to start doing irresponsible things in order to curry favour with the electorate, this is the moment when it traditionally starts; and (3) Help To Buy, although dismissed as a costly gimmick by most economists, already appears to be having an effect in stimulating a rise in lending to first time buyers and a commensurate revival in house prices across many parts of the country.
It is not entirely an accident that both the infamous Barber boom of 1972-74 and the disappointing Lawson inflation shock of 1986-87 were kicked off by populist government measures two years before the stock markets subsequently crashed. The more responsible Chancellorships of Norman Lamont and Ken Clarke in the 1990s ended only in electoral defeat. All one can say is that if the Conservatives are intent on retaining power in 2015, they would not be doing anything very different to what they appear to be doing by spicing up the housing market ahead of an important future polling date. Appointing a new Governor of the Bank of England who has staked his reputation on his ability to use expansive monetary policy to stimulate economic growth while holding down mortgage and other interest rates could not be part of the same political dynamic, could it? Perish the thought!
Jonathan Davis 