People say the funniest things...

Here's one example of one of the cornerstones of Home-Owner-Ist propaganda which has entered popular consciousness over the last five or ten years:

The bigger problem is that, for good or ill, our economy now depends in significant part on the property market. Like our over-dependence on the financial sector, it's easy to see why this is a bad thing. Changing it is another matter.

To make homes really affordable would take such a price crash that, were it to happen, it would cripple the recovery and probably drive banks under. Nor are housebuilders going to build to increase supply while prices are static.

Meanwhile ordinary people have quite logically decided to invest in property — something Shapps tuts at —because of employers gutting their pension schemes. It might mean the end of Thatcher's “property-owning democracy” as we know it. But whether we like it or not, we need rising property prices.

That's just one example, but it is really quite extreme; he kicks off with a bald and entirely insubstantiated statement and then builds the rest of the article round it, cheerfully admitting that this is an unhealthy state of affairs but that somehow there is no alternative.

When challenged, Home-Owner-Ists will explain this Double-Think in a few main ways:

Version A

If prices fell, then lots of people would be in nequity. Banks would suffer such extreme losses on repo'd homes that the financial system would collapse.

That's not true. Half of homeowners are mortgage-free and LTV ratios on existing mortgages are spread fairly evenly (i.e. a tenth of mortgages are less than 10% of the current value of the home; a tenth are between 10% and 20%, and so on).

Even in an extreme (and highly unlikely) scenario where house prices fell by half; every borrower who was even one penny in nequity lost his job, defaulted and declared himself bankrupt; and the banks then repo'd and sold all those houses, the total losses to banks would be around one-sixth of their assets, which is an amount that can easily be covered by debt-for-equity swaps.

Version B

If prices fell, then lots of people would be in nequity. They wouldn't be able to trade up or down or move to where they can find a job.

For a start, the number of transactions is already at all-time low and very few people are selling, buying or moving anyway, so we already have all these negative effects.

And it's not true either. It would not be rocket science for the government to change the law so that nequity becomes 'portable', or that these debts are simply written off in 'deserving' cases (in which case see A above), or that the government assumes all or part of the liability and collects it from the borrower's future pay packets (like with Student Loans) etc.

And don't forget that for every 'forced' seller there is a willing buyer. This would get transaction numbers and hence mobility up enormously, which must be good for the economy, not to mention maximise people's happiness in terms of the size and type of home they live in.

Version C

If people's house price goes up (or stays up), they feel wealthier, so they spend more money.

This is quite obviously true, but is this a good thing in the long run? Nope.

By spending more now they are saving less, especially if they are doing mortgage-equity withdrawal, and this 'wealth effect' means that people aren't trying to go out and earn money, which is bad for the economy; even worse, the 'wealth effect' only works when prices are rising and not when they are flat.

And any decisions based on a complete illusion must lead to an unfavourable outcome:

What if, by a sheer coincidence, every single lottery ticket used the same numbers and these numbers came up on a Saturday, but Camelot's machines broke down so every single ticket holder thought he'd won a million pounds, rather than 47 pence? So millions of people would rush out on a mad spending spree for a few days or weeks before they found out the bad news?

Version D

When house prices are going down, there's a feel bad factor. Without optimism, nobody wants to invest or take risks.

This is quite probably true as well - but only as long as prices are falling.

The speed at which they are falling doesn't seem to matter, so if prices fell by ten per cent a month for six months, this would do far less such damage than if they fell at one per cent a month for five or six years (even though in either case, house prices would roughly halve). Does nobody remember the 1990s? Once house prices had bottomed out between 1993 and 1995, that's when things started to pick up again in terms of rising employment, lower government deficits etc.