It's that myth again

Nick Hubble, who generally has the right idea about a lot of things, contradicts himself here.

"Prices are controlled by supply and demand. But over time they tend to converge towards the cost of production, plus a small return. Otherwise profits of sellers are too high and competitors muscle in with lower prices. But housing is not like other goods."

So far so good, but

"Government controls both the supply and the demand. At least in the UK it does. Here in the UK, restrictions are enormous. Supply and demand can’t respond to prices. On the supply side you have government with its control over the supply of land and building types. The green belt around London is responsible for much of the unaffordability there. On the demand side you have the central bank fiddling with the cost of borrowing. And everyone needs to borrow to buy a house. Consequently, between the two, the housing market is in the grip of the government entirely."

OK, but given that planning policy hasn't really changed since the Town and Country Planning Act of 1947, how does Nick reconcile that with

"Being right is one thing, but timing is another, says Akhil Patel. He sees house prices as a purely cyclical phenomenon. In fact, both house prices and stockmarket prices are driven by the same cycle – the land price cycle. Understand that and you can predict everything. This current upswing is far from done according to Akhil at Cycles, Trends and Forecasts."

Akhil then steps up to the plate with

"If land is not made available for housing via the planning system then this restricts availability of sites and their price goes up. This feeds on itself because current owners of sites can hold them back in anticipation of further increases in the future."

but then goes on to say

"Economies exhibit a very regular pattern of boom and bust and this goes back to the late 18th century in the UK/US. This cycle is fundamentally driven by speculation in land, fuelled by bank-created credit (money).

Why speculation in land? Land captures all of the gain of economic development (law of economic rent – well understood by all of the classical economists like James Mill, Adam Smith and David Ricardo. It’s been lost to modern economics. But the law of economic rent is to economics what the law of gravity is to physics. This law makes land a unique vehicle for speculation (and collateral). The boom takes land prices unsustainably high, businesses and households get squeezed, and the whole thing comes crashing down, bringing the banking system with it. The rhythm is an average of 18 years and has surprisingly little variation."

If house prices are controlled by the supply of building land, then you expect the supply of building land to follow the same 18 year cycle, for which there is no evidence, indeed the reverse is true: the higher the price of building land, the keener people are to go to the bother of getting permission to build. Akhil Patel gives as neat a summary of the 18-year cycle as you could hope to read. Why then do he and Nick Hubble insist on trotting out the supply/ demand myth? It's almost as if it's an unquestionable article of faith something that just is, like the laws of thermodynamics.