Bank of England Governor Mark Carney's warning this week that the housing market represents the principle threat to the economic recovery created a media shock, but little response from those in power. This displays a lack of understanding at senior levels of the scale and immediacy of this threat.
Too often the housing bubble is seen as a problem limited to well-to-do young professionals who can't get on the housing ladder until their parents do the decent thing and die, so there's very little sympathy. The problem is seen as a binary division of winners and losers, where losers are a minority and winners have more votes. This is an economic and political error.
Britain has a range of industries and strengths, but over thirty years London has become the economic dynamo of the nation. Evan Davis's recent "Mind the Gap" documentary showed how the decline of manufacturing and the growth of the financial sector, together with how London's agglomeration effect has boosted international competitiveness, has turned us into a nation financially addicted to London.
With only 13% of the population the city produces 22% of the nation's £1.4 trillion GDP and while the UK is the world's sixth largest economy, an independent London would be a creditable 21st in the world rankings. In this context recent governments haven't begrudged the odd billion or ten for infrastructure projects, or indeed the £700 billion bailout to the banking sector after the 2008 crash. However, the next piece of infrastructure in which London needs investment is affordable housing.
Already the price of getting by in London has created pressure on wages. The long standing "London weighting" convention, together with the hugely effective London Living Wage campaign, are illustrations of wage pressures that intrinsically effect the capital’s competitiveness.
With wages almost stagnant and house prices and rents rising by double-digit percentages, workers in London are having to decide to move further from work, get a smaller place or put up with increasingly poor living conditions.
But there is a tipping point that we have just about reached. Workers in London can choose to work elsewhere and as the pressures mount, they will begin to do so. And as workers choose to take jobs in other parts of the country, employers will start to follow.
Yet some of them won't. Some of those individuals and businesses will instead relocate elsewhere in the world. Each person and company that leaves London not only reduces the competitiveness of the city but also undermines the business case for all the infrastructure investment that has been committed to the city, projects like Crossrail, HS2, the massive new dock in the east and any new airport investment. Instead of sweating those assets, all that investment becomes sub-optimal.
A London that prices out its workers becomes sterile and lacking in creativity. The universities stop attracting UK students. The nightlife and leisure industry narrows to serve an ever smaller number of increasingly wealthy people. London just gets less attractive - and while 5% of GDP collapse could transfer to the regions, double that - 140 billion pounds a year - could leave the country altogether. That's the equivalent of a banking bailout every five years.
The danger of the housing bubble in London and the south east is that government policies are actively inflating it, preventing the natural market correction that would save London and the UK from this economic nightmare. So when Mark Carney describes the housing bubble as the number one economic threat, he really isn't joking.