The government could cover the whole of Britain in new housing and property prices would continue to rise if monetary policy remains as loose as it is now, according to notorious perma-bear Albert Edwards.
As the voice of the market bears — people who think imbalances in the financial system will lead to a collapse — Edwards, a strategist with Societe Generale, is given to making grand proclamations about the state of the world.
So far this year he has said that China will be forced to float the renminbi, predicted a “tidal wave” of corporate defaults in the US, and argued that central bankers are going to destroy the global economy and plunge the world into chaos.
Edwards made that last prediction in Societe Generale’s weekly Global Strategy note to clients, sent on Friday, and along with predicting the crash of an “enfeebled” world economy, he also blamed central banks — or more specifically the Bank of England — for causing the housing crisis that’s plaguing the UK right now, arguing that Britain doesn’t actually have a shortage of housing, just a big imbalance in supply and demand.
That imbalance, Edwards argues, is down to BoE governor Mark Carney’s excessive reliance on quantitative easing and loose monetary policy. Carney, he says, is a “bubble-blower extraordinaire.” Here’s an extract from SocGen’s note to clients (emphasis ours):
One example where I find market participants have totally swallowed the policy-makers mantra is that the solution to the UK housing shortage is to build more houses. This propaganda has been repeated so much that it is has become the 100% accepted truth. Indeed it would have escaped nobody’s attention that UK house prices have been booming and are at nose-bleed levels of expense on simple price/earnings measures.
Edwards continues (again, emphasis ours):
I’m sorry, but if monetary policy is too loose, you can concrete over the entire length and breadth of the UK and house prices would still rise. There is no shortage of housing. What there is, is an imbalance between demand and supply and demand is excessive because of crazily loose monetary policy. Its as simple as that. And, as the most prescient guys at Fathom Consulting have pointed out, if there really is a shortage of houses, surely rents, like house prices, would be rising too, way in excess of other prices in the UK economy?
Edwards points to the research from Fathom’s
Erik Britton, a former macroeconomist with the Bank of England, that suggests if there was a true housing shortage, rental prices would have rocketed in comparison to inflation in recent years, but as this chart shows, that’s not the case:
Here’s Edwards once more (emphasis ours):
We are told that the only remedy for the unaffordability of housing is more supply. There must surely be a shortage of housing and we need to build more. Every paper and commentator is full of it. Andy Haldane a leading policy maker just reaffirmed it too “There are things we can do at the bank and others can do at the Treasury to damp down demand a bit, but ultimately the solution to the problem lies in the supply side rather than constraining demand.” Total and utter tosh! Isnt it curious by the way that whenever house prices are falling they must stimulate demand and whenever prices are too strong they call for more supply never the reverse!
While he’s full of gloom and contempt for the Bank of England, Edwards does acknowledge that some of the problem with housing, in London in particular, relates to rich investors from oil-rich countries in the Middle East pouring cash into London properties, saying that: “London has its issues with foreign investors using the housing stock as a destination for capital flight.”
However, that’s just a distraction from “the simple truth that unprecedented loose UK money has driven prices to ridiculous levels, a development welcomed by the policy makers indeed that is the purpose of QE,” Edwards argues. “So what do they do in response? The government puts in place taxpayer subsidised mortgages to first time buyers to put them even more in debt!”
Edwards ends his note by saying: “The lesson here is not to believe what the lies and half-truths policy makers are peddling us (thats global not just the UK). Central Bankers are surely taking us down the road to perdition.”
So there we have it, Britain won’t be able to solve its housing crisis until the Bank of England tightens monetary policy.