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Housing Bubbles as Economic Policy

 

I’m curious why governments around the world are fond of pursuing higher house prices as economic policy. Not that I have anything in principle against higher house prices. I understand why governments want to do it, housing is an important concern for many people and a significant contributor to an economy. But all of that is wasted if the policies stimulate a housing bubble that eventually bursts leaving people poorer because their main asset drastically falls in value. But I’m concerned that governments introduce significant economic risk to the whole economy by promoting housing bubbles. We saw this with the recent Great Recession that consumed the US and much of the world in 2008-09. Yet governments continue to inflate housing bubbles. In the end, we are worse off when a housing bubble pops. I’m no ‘economic girly man‘ when it comes to risk, but surely as stakeholders in the global economy (and voters, depending on where you are) shouldn’t we be cognisant of the risks that our governments introduce? That way if we know about it, we can demand our governments to manage or even prevent these risks. This post will attempt to identify the key ways that governments have introduced risks into our economies in order to stimulate housing bubble.

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