Rishi Sunak and Sajid Javid standoff over Covid testing delays Cabinet meeting

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The housing market appears to be a wealth creating machine, writes Roger Bootle. Homeowners made capital gains on their properties of about £800bn last year, according to research by Savills, amounting to over a third of one year’s GDP.

Nor is this just a manifestation of overall inflation. Research by the Resolution Foundation and Abrdn Financial Fairness Trust reveals that since the year 2000, house prices have beaten inflation by some 86 per cent, giving capital gains on people’s main residence of about £3 trillion.

Not only that, but last year the value of the average house went up by more than the average worker earned. After tax, the gap is larger because such capital gains are not taxed at all, whereas workers’ earnings are taxed heavily. So aren’t you lucky? What a bonanza from your home – assuming that you own it, of course.

But is this increased wealth real or illusory? When dealing with tricky subjects like this that involve bafflingly large amounts of money, it is often useful to think about the underlying economic reality without any reference to money values. Does this huge increase in wealth correspond to a large increase in the quantity or quality of the housing services enjoyed by the people of this country? The answer is no.

​Roger Bootle: Higher interest rates are the way forward

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