Now lets think...

1. Unemployment - remains very stubbornly high in view of the fact that there has been a 'job creation scheme' in Local and Central Government - so no miracle economy there - only a Keynesian approach with the inflationary problems thta have always ensued.

2. So who apart from them are buying the properties?

3. I in common with many small businesses as a result cannot find proper cheap business premises (forget the cooing over the housing market for a minute).

4. I cannot expand. I cannot take on more employees.

5. The Local (and Central ) Government can expand.

6. To increase public expenditure has always been inflationary.

7. Inflation cannot be allowed to increase.

8. If inflation increases it will lead to higher interest rates.

9. Higher interest rates lead to .....

MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMeltdown.

Pete Balchin , Bristol, uk

As an American, this talk that the government should somehow encourage a price decline in housing seems preposterous. Such intervention is likely to create further imbalances and dislocations.

Why can't you just let the market decide? Price changes that are driven by supply and demand (not just for housing but also for money) will allocate scarce resources to their highest and best use. If that means that certain people can't afford to live in London but need to move to outlying cities, so be it - they are probably not adding as much to the economy of London as the next person who can afford to live there. This is the secret of the American economic strength and the weakness of socialistic systems.

Allen, Los Angeles, USA / CA

The distortions which have built in the housing market have accrued gradually, and may not have been addressed because doing nothing seems less painful than correction.

Although some rents may seem cheap in relation to current inflated house prices, historically they were far ‘cheaper’ under the distortion of the various rent control regimes which were operational until about twenty years ago. Many rents are now paid from Housing Benefit, and current rent levels might be unaffordable in many cases from income alone.

So, we have supply of new builds limited by planning constraints, shortage as a result of buy-to-let investment, first time buyers limited by insufficient income, and continuing house price inflation helped by equity freed in trading up or down by existing house owners. Realised (or borrowed) equity increase is also fuelling economic activity. We are now in a world where free markets are the norm.

Markets sort problems of distortion. The process can be painful.

dr venables preller, Warminster, UK

House Price rises over inflation only seemed to start when lenders with too much money available allocate on the premise that whatever the valuation it would be higher in the future and irresponcible lending was not punished.

I have always thought that Gordon Brown made a major mistake in not ensuring that house price inflation did not get away from him by punishing irresponcible lending.
3.5 times annual income seems a sustainable level historically.

If in the event of repossession, irresponcible lending was shown i.e. more than 3.5 times anual income then the lender would not be able to recover any deficit from the borrower, this problem would not arise.

Simple, but the lenders would oppose this because they know this would be effective.

M Sheridan, Oldham, UK

House prices are being artificially inflated (as the article suggests) by buy-to-let investors. But not all of these are property magnates. The majority are looking for ways to ensure a comfortable retirement who have recognised that the pension system is fundamentally broken (caused in part by Mr Brown).

Using the stick on these people is not a holistic answer. There has to be a carrot aswell. Maybe it's time for government to take the lead in alternative financial products (as per PEPs, ISAs) and deliberately incentivise alternative forms of investment which are not as prescriptive as the current personal pension/compulsory annuity purchase schemes.

Richard, London, UK

If it was a simple problem of supply and demand exacerbated by immigrants, as many here suggest, rents would have also rocketed.

In many parts of the UK, renting is cheaper than buying.

Claire Dunbar, Edinburgh, UK

"It is supply and demand. So long as there are more people than houses the trend will continue. The only way to cure the problem is to reduce and control the levels of population."

Actually, that is an often touted but misguided claim. If supply were so low, rentals would be a lot higher (at the very least at parity with mortgage repayments). My rent works out to be roughly half the interest portion of what the current owner paid for the house, assuming he took out a full mortgage of £298 000.

Chantel, UK,

A point missed by some of the contributors is that if the house price bubble is due largely to a lack of supply, why have rents not increased in line with house prices? This appears to suggest that demand for houses as a place to live has not substantially increased, whereas demand for houses as a financial instrument (driven by cheap credit, expecation and a compliant mass-media) has increased exponentially.

There is a significant correlation between periods of rapid money supply growth and periods in which the rich get richer at everyone eles's expense. The current period is somewhat different in that mass participation has created the illusion that everyone is better off because house prices have risen. The rapid credit growth that has fuelled it has been allowed to happen under a "Labour" government.

Steve, St Neots, UK

With Blair gone is it safe to return to the UK? or should I remain in the French countryide,10 minutes from the golf club and five from the village with zero crime.Plus superb medical facilities,traditional village schooling,stable house prices,wine at 2 euros a bottle(good wine)and atlantic oysters at 8 euros a kilo! Or is there something to look forward to with Mr Brown on the horizon?

Alan Beresford, Poitiers, France

If a housing shortage was the problem, then rents would have risen as fast as house prices since tenants also form part of the demand function for property. It also doesn't explain how equally crowded places like Tokyo or Hong Kong managed to have a crushing house price correction in the 1990s.

And why does Mr Harding assume that unemployment has to rise for prices to correct? This is not based on anything other than hope - the US is correctly in the midst of a correction in the context of very low unemployment.

Brett A, New York, USA

The reason that housing prices are so inflated in London and the South East is the tax concession for foreign domiciled residents. In the past the influx of wealthy paying no tax was considered desirable because of the amount spent in the UK. We are now seeing the social cost of this. It is not just the superrich. Even those of moderate wealth can live in the UK and escape the punitive taxes of say France or Germany and they obviously find it worthwhile to pay inflated prices for UK property. It is time to end this anomaly and I suspect Gordon Brown thinks likewise.

Colin Grant, Westmount, Quebec, Canada