Letter: Retail price myths

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The Independent Culture
Sir: David Miles is right to draw attention to some of the myths that are bandied about on the housing market (report, 12 July). However, on his Myth 3, "Inflation will now be low and that is bad for housing", it seems to me that low inflation must in the long term have a greatly moderating effect on house prices.

In the Seventies when interest rates were high, but income taxes and inflation were higher still, it was impossible to maintain the value of money you saved. It was not difficult, especially for young people, to see that you should put your money into bricks and mortar, which had a real and enduring value. If you borrowed as much money as you could, it was even better, because you could get inflation to work for you instead of against you.

As this effect has become ingrained into a whole generation, it has had the effect of pushing real house prices up and up.

People are still borrowing as much as they can, even though they will have to pay their mortgages back with "real" money. It seems likely that house prices will have been forced above their very long-term trend line by the inflationary psychology. When the public gets used to low inflation, or possibly when people start to get hurt by the size of their real debts (rather than by high interest rates), house buying will seem less attractive.

Our advice to investment clients is always to concentrate on the income which a property will generate for them. If those sums look right, then any capital increases from the property are a bonus.

PATRICK CHILDS

Stow Associates

London SW11

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