…..Even though it’s been said before, it’s worth repeating that the UK is a country wrongly convinced that inflation-busting increases in house prices are a good thing. They are not. The flip side to over-investment in bricks and mortar is under-investment in other more productive uses of capital. The regular booms in the economy driven by consumers extracting and spending equity from the rising value of their homes are invariably followed by busts.

Those who benefit from rising prices tend to be better off people in older age groups. Those who lose out tend to be two over-lapping categories: renters and the young. Anybody under 35 who is saving up for a deposit on a flat will be glad of a drop in house prices.

Housing is likely to be a central issue at the next general election, with the two main parties each backing a different side. The Conservatives – who have all but dropped housebuilding targets – are lining up behind existing owner-occupiers. Labour has said it would impose targets and be prepared to build on parts of the green belt. It is also drawing up plans that would force landowners to sell plots of land for less than their potential market price in an attempt to stop land hoarding and so increase the supply of new homes.

Even if Labour actually goes ahead with its plan, it looks certain to be challenged in the courts. Currently, if a council wants to compulsory purchase a piece of farmland for housing development it has to pay a “hope” value. That’s the value not of the farmland but of the value of the farmland adjusted for planning permission, which is substantially higher.

What is certain is that Labour’s approach makes more sense than the government’s. The current levels of housebuilding are incompatible with a rising population, and increasing the supply of homes requires reform of the planning system.

The politics are also interesting. Onward, a right of centre thinktank, produced a report last week in which it said the current crop of 25- to 40-year-olds was the first not to become more rightwing as it grew older, and housing is one reason for this.

Current Conservative housing policy will help those in their 50s and 60s who have already benefited from house-price inflation rather than those in their 20s and 30s struggling to get on the housing ladder. If Labour has concluded this is dumb economics and dumb politics, it is right on both counts.

Larry Elliott www.theguardian.com (Extract)