Robert Shiller in his new book 'Finance and the Good Society' raised some interesting questions about the current housing market and whether a return to large house prices would be a good thing.
It would depend upon the cause of the of the price increase and whether it was a result of anotther unsustainable credit boom followed by another credit crisis. If the cause was rigid planning preventing more houses being built - do we want this?
Complacency: Households assumed that their properties would rise in value so they did not need to save and could borrow on the assumption that they could pay off their debt when they sold the property. Is this likely to happen again? Do we want it to?
The wealth effect - if you sell your house you still need to find somewhere to live and the price of other houses or rented properties in your area have also risen. you could leave the area to buy a cheaper property. you could leave the area to where property prices/rents are lower buit what are the job prospects and familty/social ties?
Downsizing and Inheritance: An elderly person or couple may decide to sell their property and move into a smaller one or rent. However if a household has more than one child then rising house prices will mean that either all of them could not afford to buy a house, if they inherited the value of the house, in an expensive market. How do we provide affordable housing for the next generation?
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