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Free up the 'equity' in housing and the economy will pick up the slack

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Not many people realise it, but we are on the verge of a very important anniversary. Six years ago, give or take a day or two, the then Tory heritage minister Stephen Dorrell told a thunderstruck audience of Leeds businessmen that the housing market was a thing of the past. 'Houses are for living in, ' he explained. 'If you want investment advice go to a stockbroker.'

Now the answer to the question, 'what happened to the boom housing markets of yesteryear?' is a mystery as great as any posed by the Bermuda Triangle. But if the past six years has taught us anything it ought to be more than not to trust a Tory minister to understand it. The housing market holds secrets that cannot be wished away by any politician who is hoping to be re-elected.

Announcing, as Dorrell did, that homeowners should not be hanging on in the hope of a return to the good old days of £50 billion a year in 'equity leakage' (as it was called before the coining of the more responsiblesounding 'equity withdrawal'), plus the free cars, holidays, school fees paid and a nice big tax-free nest-egg to trade out on.

To say that instead of a share in all this they should have been taking an early shower in Lottery tickets and seeking helpful advice from the City was plainly stupid. Not least because any advice from the stockbroking fraternity - especially in connection with investments - is now to be regarded with even greater suspicion than the utterance of any politician.

The truth is that at present the housing market is not dead but in hiding. All the philosophical outpourings wasted on the provenance of the 'dodgy dossier' would have been much better directed at an examination of this great existential event. For today, as I never tire of saying, housing policy is made by homeowners, not the government. And, as a result, it is as pure an exercise in democracy as you will find in these corrupt old islands.

In 1988, at the height of the Thatcher boom, a Shelter economist calculated that homeowners held in excess of £700 billion in equity. Since then they have lost about 11 per cent of it - say £77 billion shared among 14 million households, an average of only £5,500 per dwelling. When the £6 billion added on to mortgages by cuts in MIRAS since 1990 is taken into account, plus the £50 billion recouped during the recent period of low interest rates, you can begin to see that Mr Dorrell's stockbrokers could have learned a lot from homeowners.

The really important fluctuations in housing have not been in the rate of new construction, which is a very sluggish indicator, but in the number of house purchases. In 1965 more than 220,000 new houses were built and 380,000 houses were sold.

Ten years later, 180,000 were built but sales had risen to 715,000. In 1988 only 180,000 were built, but sales soared to two million houses.Then in 1992, while completions only dropped to 140,000, sales plunged to 1,150,000.The so-called 'collapse' of the housing market in the early '90s is better understood as a slowdown in the volume of house trading undertaken to protect the value of houses.

So why can't the housing market be set in motion again?

Today's borrowers hold hundreds of thousands of purchasing decisions in their hands. At the height of the Thatcher boom, one in every 10 employed persons in Britain was directly or indirectly 'paid'by the housing market. Find a way to kick-start that market again, and we will have the answer to an incalculable number of problems.

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