Prices soared and consumers duly borrowed even more against their new-found equity. In this way, a new Joseph Rowntree Foundation study estimates that pounds 21.6bn was added to consumer spending in 1988 alone.
Such a phenomenon could repeat itself. Aberdeen suffered a sharp fall in house prices after the oil price crash in 1986, yet they bounced back sharply later. Moreover, the large number of people who are trapped in homes worth less than their debt means that supply will be unusually limited until prices rise sharply.
The Rowntree reports provide a thoroughly sensible checklist of preventive measures. With the costs of servicing a mortgage now at their lowest level for 30 years, there is scarcely likely to be a better political opportunity to abolish mortgage interest relief at a saving of pounds 3.6bn next year to the Exchequer.
The risk of another fall in prices, triggered by a cut in mortgage relief, would be minimal now. The numbers of 25- to 29-year-olds, the key group of first-time buyers, is larger than it was even in the mid-Eighties. In any case, there is a substantial backlog of buyers put off by the price slump.
On the supply side, Rowntree suggests help for the private rental sector and planning changes that might prevent localised housing shortages. They could be more radical. A tax on unused city land would encourage sales and building.
If the Chancellor is lucky he may also be able to implement one of the most important changes - a recalculation of the retail price index. The inclusion of mortgage rates as a proxy for housing costs is daft. It means that the interest rate rises needed to curb inflation merely stoke it.
But that reform depends on the RPI advisory committee. It should vote to replace mortgage costs with notional rents as in other countries.Reuse content