What could or should the government have been doing to prevent a housing bubble?

Restrict credit.

- Make banks hold a higher reserve.
- Target money growth as well as consumer inflation.

Or:
- Restict mortgage lending to individuals (3.5x max)
- Tax 2nd homes more heavily
- Withdraw offsetting rental income against mortgage cost (unless it's a company)

There's a few ideas!

I'm not sure what the effects would be of making banks hold a higher reserve.

How do you think money growth should be targeted?

As for restricting lending -- indeed a good idea since too much of a good thing can be a big problem! Bank should be liable for misselling mortgages or other loans, and self-cert mortgages should be accompanied by proof and be checked periodically for their accuracy.[1]

The second home lark, I've no idea how that is supposed to work. If he has a house and she has one, they would be individual homes, and then you're in the big brother territory, having to police people (which never really works)

I would be against destroying a cottage industry with not allowing the offsetting, besides that, people could just open a business. LL's do offer a useful service!

What about financial education for people as part of the GCSEs?

[1] I had a huge discussion at home about this. The nanny idea wasn't liked very much, but, my main argument for this is that the bank is the expert, and the punter should not really be expected to know enough to keep themselves safe. If I buy a lamp, then it is reasonable to assume that even without knowledge about electricity, I can use it without risking death by switching it on the wrong way. Likewise, it should be reasonable to assume that the bank has a similiar duty of care? Another idea was that a housepurchase should be guided by a third party who ensures that the people who are buying are doing so sanely.

The effect would be they would not be able to lend as much. It would also make the banking system more stable (less risk of a bank run). It would also reduce the inflationary effect of money supply increases (by reducing the money multiplier).



Very simple, this is purely in the hands of the BoE. All they have to do is make fewer open market operations. At the moment the UK money supply is increasing at 12% per annum, compared to 8-9% in the US and Eurozone. Even Mervyn King has said this 12% rate is 3% points above the sustainable long term rate.

frugalista

The market will eventually restrict credit, but only AFTER losses become apparent.

The barn door will get closed after the horses have bolted

enable the prosecution of lending institutions directors for manslaughter where punters take their own lives due to defaults on homeloans...