Originally Posted by
Ring_Peace
I'm afraid it's not that simple a model as the causes of demand side are due to irresponsible lending and possibly money laundering which the government sanctioned by their policies.
When we used to apply for a mortgage the responsible lending limit was based on your salary, and if you were in a partnership then their salary was also included. So the banks would lend you either 3 times the highest salary, or 2.5 times the combined salary for joint mortgage applications. Your mortgage was typically an "endowment" type, whereby each month you agreed to pay the interest on the principal lent amount, but also you would save money into an investment vehicle in the hope that, when the mortgage term is up, you'd have enough saved to pay the initial lien. The second popular mortgage type is the repayment type where you pay of both an element of original loan and also the interest on the loan until the lending term is up.
The "endowment" mortgage type was discredited after many investors did not save enough or found they were sold policies that did not return enough to pay the capital loan. The next generation of home owners used this problem to their advantage, taking out "interest only" mortgage loans with (as far as I can tell speaking with many of these financially illiterate) little intention of paying the loan off via saving into a separate investment vehicle. As this new irresponsible (not illegal) lending exploded in the late 90's so started the housing boom. This only served those people who had a foot on the housing ladder...and therefore by definition "all boats did not rise on the same tide". The people that bought houses at that time, including from right-to-buy social housing stock, which not only depleted the stock but turn traditional working class voters into now more affluent upwardly mobile and, soon to be, new Tory voters. This was Thatcher's master stroke.
The property boom continues. The people are elated (those who now have a mortgage) as they are grateful to be "homeowners".
Irresponsible lending, which led to more irresponsible lending (subprime loans) and another short-term economic boom. It's easy to loan more money if you have an existing loan it seems, regardless of your ability to pay....and this leads us to the '08 crash. The supply side of easy money to Joe Public was eagerly pumped into property...with the risk takers buying second and third properties to flip or more typically rent them out. The removal of housing stock by these coupon cutting speculators did much to drive the price of houses beyond reasonable pricing (based on the old safe 3 x salary limits) for new home owners who at this stage are taking out 5x, 6x salary interest only mortgages...putting themselves not only into a massive financial prison but trapping themselves in the prison when demand dries up and they go into negative equity.
The Keynesian model discredited in favour of monetarist policy. Monetary theory perverted to bail out the banks...print more currency into existence out of nothing...reduce interest rates to effectively negative rates once inflation (inflation is effectively a central bank tax) is considered...pay off one debt by taking out another loan. In other words keep the party going at any cost....companies can save money and pass that saving onto the consumer by way of increasing competition and how??? by shipping jobs to India and China. People love Asda as it's sooo cheap. Never asking why that is.
People used to have savings accounts you know, with money in them and everything. I bet that there is not more than a few people on here, me included, that have more than one months outgoings saved. We are mostly a hand to mouth spent up husk of a economic force now...and then there's Brexit. The biggest lie sold to the British in some time, but I digress.
This is only my view which some may agree with and others will decry as nonsense, which will all go to show the model as you can see is far from simple. Basic "supply and demand" does not answer all the questions as the forces behind those supply and demand factors are far more powerful and complex.