In 1989, inflation was running at 8-10% and was a concern to governments but it was not something central banks were interested in. Then the New Zealand government set an inflation target for its central bank, much to the horror of unions and businesses who feared it would kill jobs, and within 2 years inflation was down to 2%. The rest of the world soon followed. Now with New Zealand house prices rising at 19% last year, are they about to do the same for house prices?
NZ Prime Minister Jacinda Ardern has "ordered the central bank to add stabilising house prices to its remit". Decades of loose central-bank policy have done less to generate growth in the real economy than in housing and stocks. This has been exacerbated here by deposit guarantees and similar schemes such as 'Help To Buy' which have all encouraged house price inflation. Unfortunately, more homeowners vote than those who don't own homes and having 'equity' in your house because the value has risen more than inflation makes voters feel richer and thus more likely to vote for more of the same.
Whether we like it or not - this widens the gap between those with assets and those without, which will never end well.
Research dating back 140 years in 17 major nations finds that, pre-1945, only 25% of recessions followed a bubble in house prices or stocks. Since then, 2/3rds have. Since the £220trn global housing market is more than twice the size of the global stockmarket and is "complicated by debt" (how many of us used leveraging to increase the value of our investment quickly?), recessions that follow housing bubbles are amongst the worst. If Ardern's idea catches on, it could lead to greater financial and social stability worldwide - lets hope that if it does work, the UK are among the first to implement similar changes.
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