Economist predicted previous recession
House prices crash looming
By Iain Harrison. The Sunday Post.
THE economist who first predicted Britain's 1992 recession warned yesterday that the next major economic crash is looming. Fred Harrison claims Britain's house price bubble will burst by 2007, sparking a savage depression in 2010.
He says the slump will wipe a staggering £800 billion off the value of the nation's housing stock, with Scotland being particularly hard hit. Job losses Executive director of the Land Research Trust, Mr Harrison believes the knock-on effect will result in significant job losses. The fiscal expert has spent 25 years studying the economic cycles of the UK economy. In his 1983 book The Power In The Land he accurately predicted that Britain would be hit by recession nine years later.
Despite submitting his findings to the Thatcher government's treasury select committee, his concerns went unheeded. Harrison's analysis has revealed a remarkably consistent pattern. The country enjoys an economic peak every 18 years. But after the boom years comes the bust. Started already And he claims the drop in house prices has started already and will have fully hit within two years. While recession won't begin immediately, it will be here by 2010. "For 300 years, we've paid on average five per cent for a mortgage," he said. "That delivers a building cycle that lasts about 14 years. "Towards the end of each cycle speculators try to corner the market in land. "They then hold communities to ransom and make a killing by selling the land when people are desperate for it. "As a result a few people get very rich but the effect pushes house prices so high they became unaffordable. "So the housing industry shuts down, building firms go bust, people are sacked and the public stop spending money. "The initial 14-year cycle is followed by about four years of recession." Mr Harrison says the increasing trend towards re-mortgaging is one of the core problems of this boom-bust situation. "People withdraw all the equity in their houses which leads to a ?let's live beyond our means' psychology," he says. Large profits "This helps drive up prices and as a result people think they'll make large profits out of buying and selling so they trade up." According to Mr Harrison, consecutive UK governments have failed to solve the problem of economic booms and busts because economists refuse to take land prices into account when tracking inflation. "The solution is to remove taxes from people's wages so they're encouraged to be more productive," he insists. "People should be aware that the next house price crash will deliver negative equity on a massive scale, particularly in the Edinburgh area. "I would urge them to think very carefully about investing in the property market from now on or they may lose the shirts off their backs." Ed Stansfield, of Capital Economics, backs Mr Harrison's theories on the housing market but falls short of predicting an all-out recession. "We believe house prices peaked at the end of 2004 and by the end of
2007 we will see average prices fall by 20 per cent," he adds.Boom Bust, published by Shepheard Walwyn, ISBN 0 85683 189 1, is launched tomorrow in Edinburgh at Blackwell's Bookshop, 6.30-7.30pm