Keith - thanks for this brilliant post - living in the margins of the uk it is good to know that others are just as brassed off about 'affordable' housing as me.

in your LSF - post you linked to here you said this:

"Interest rate change is a crude instrument to dampen down the property market, as the level of rate rise needed to impact on an out-of-control property market imposes huge burdens on productive sectors of the economy. Housing debt as a percentage of GDP had dramatically escalated from 23% in 1980 to 65% in 2002, a situation that is clearly unsustainable. If interest rates cannot control rising property prices, then all that is left is a land tax."

and you also said you were just reading Boom Bust. here is another quote from the intro to this book:

“Gordon Brown’s first act on arriving at the Treasury was to announce the independence of the Bank of England. There would be no political tampering with the money supply. In future, interest rates would be set by a Monetary Policy Committee (MPC) composed of eminent economists. Brown set the target inflation rate: 2.5%.”... “But that 2.5% target was defined by Gordon Brown to exclude mortgage interest payments on houses.”

this means that house prices are effectively discounted from any effect of changing interest rates - because interest rates are set in relation to the inflationary index. the idea is to allow investment in uk real estate to grow unabated - i.e. who cares that it causes exclusion of the poor from ownership - so much the better for privatised RSL's.

and for your interest i wrote a review of Boom Bust in Sustainable Economics:

Boom Bust House Prices, Banking and the Depression of 2010 by Fred Harrison
2005 pub: Shepheard Walwyn, pp.274, ISBN : 0 85683 1891

The ambitious subtitle of this book summarises his theory that there will be a recession in the coming years due to the cyclical nature of the modern business trend of growth and decay. He believes that those in power are either ignorant of this fact or wilfully negligent given the blatant evidence of an 18 year pattern of Boom and Bust. He suggests that, like the reason why climate change was not noticed by NASA even though they were actually measuring all the necessary data, the current crisis of house and land price inflation is too incredible for people to adjust to the possibility that there are deep flaws in the entire system.

The fundamental mechanism which is posited as the failsafe of the modern economic equation is supposed to be the adjustment of the inflationary index through government changes in interest rates. That Gordon Brown made it the first major change of his appointment at the Treasury to hand over this mechanism to the Bank of England is further complicated by his condition that mortgage repayments would be excluded from the inflationary index. Such a move, suggests Harrison, entrenches an already debt-burdened middle class with a multi-faceted paradox which requires a deep analysis of the real cause of inflation and recession as the speculative interests of property developers.

Through an exhaustive debate as to the historical and contemporary causes of speculative gains he outlines the case for a split in understanding between the creation of wealth through productive labour and the manipulation of the national product by investors who use the exclusion of land values from the economic equation as their tool. On this count it is perhaps indicative of the nature of this dilemma that he says on the one hand that the experts not only differ but actually admit to their confusion, and on the other that there is nevertheless a logic to the phenomenon of Boom Bust which can be derived from the historical process of mortgage borrowing through the creation of Building Societies, and the more obscure facts of social demography such as industrial displacement and longevity.

Turning to America and the Dot Com bubble his analysis takes on a more global perspective in light of the inability of Alan Greenspan of the Federal Reserve to alleviate soaring speculation-fuelled inflation of not only the futures market on the internet, but more interestingly, it’s effect on the property market in Silicon Valley. Although he shows that it is again the process of monopolisation of the scarce commodity of development land which spikes the market, and that therefore the fluctuation of interest rates created by restrictions on money supply merely squeezes an over-extended demand, this is exacerbated by the existence, or even non-existence, of electronic currency, especially in relation to companies which had yet to produce anything at all.

The book takes Australia as a case study for an evaluation of the possibility of preventive action in the form of a tax on speculative investment in the property market. This, as he demonstrates, has taken various forms in the modern context, but none as far-reaching, as his figures suggest, as a total shift in emphasis such as the Single Tax advocated by Henry George would have if applied to the examples he quotes. Given the relative ease by which Australia’s property market can be statistically analysed, he proposes that a full-scale implementation of a land value tax would entirely fund the public purse based on the unearned gains which have been made by private investors. More relevant perhaps is the surprising observation that a comparison between Australia and Japan yields some interesting facts about the density of population in relation to the land mass and therefore the relative availability of development land.

This last fact somewhat prefigures a rather weak advocacy of a return to a more holistic philosophy of land use and it is surprising to find that he champions the unrewarded labourer, not as a means to restoring social equality, but as a spur to greater productive efficiency. Perhaps the two are the same, but in the context of his passing remark that LVT could facilitate a future where private ownership could become more equitable, I feel that Fred is veering more towards a ’free-market’ paradigm than his otherwise neo-romantic evocation of traditional agriculture might imply.

I hope soon to have a review of this excellent book by Fred Harrison.

Further points he makes on inflation, is that the rise in house prices is excluded from the retail price index, thus it does not reflect reality.

To dampen house price inflation, which is driven by land price inflation, he suggests a hefty land tax, so hefty, that we would not have to pay income tax.