Matthew Lynn of Moneyweek has a go at the so called "Generation Y", today's young people.
If you read all the press coverage, you’d find it hard to believe life could get worse for Generation Y. The youngsters born in the 1980s and 1990s appear to have no end of problems – and not just trying to decide whether to buy the iPhone 5 or the Galaxy S4.
They are stuck at home with their parents because they can’t afford overpriced houses. They are burdened with the cost of an education their parents got for free. There are few jobs available and they have to sweat as unpaid interns for years to get on the career ladder. And through taxes they have to subsidise their grandparents’ free bus passes and winter fuel allowances – even though the 60-somethings have more money than them.
But in reality, this generation has a much easier time of it than either Generation X or the Baby Boomers. And they in turn had easier lives than their parents back in the days before generations were alphabet-coded. That hasn’t stopped yet another report this week from laying out the problems faced by today’s 20-somethings. According to the National Housing Federation, a “jilted generation” is being created that can neither afford to buy a house, nor pay spiralling rents. More than 3.5 million young people will be living with their parents by the end of the decade, it argued.
but his solution to the problem outlined by the NHF is a persistent economic myth:
But if Generation Y wants to do something about this, it should campaign for the green belts around our major cities to be ripped up. If planning laws were relaxed, far more houses would be built immediately – lowering the cost of housing.
This is real man-in-the-pub, stands-to-reason stuff. Prices are high because there is high demand and low supply, put up the supply and prices will fall. Sounds reasonable, law of supply and demand and all that, but history shows that is not the case. The 70's in the UK were a time of unprecedented housebuilding. They were also a time of unprecedented house price rises. Prices in Spain and Ireland were unaffected by huge building booms.
What brought them down was a collapse of the credit supply. On the face of it, it seems counter-intuitive, that the price of houses should be controlled not by the supply of houses, but the supply of money, or, more specifically, credit. What Generation Y should be hoping for is not more housebuilding, but a rise in interest rates.
That will reduce the multiplier of annual income that is the maximum the lenders are willing to lend, which, in turn, will reduce the price of housing. Since interest rates can't go down much more without being negative, the only way for them to go in the long term is up.
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