<p>The most recent crises that popped in 2009, had actually gone in several years before which lead up to that crisis point and it was the result the collusion of the Central State and banks to extend home ownership to millions of citizens who did not qualify for that burden.</p>

<p>By the way, it did not stop a year later. The Federal government continued to pour tens of billions of dollars into this "home ownership should be for everyone" project via subsidies to Fannie Mae, Freddie Mac and FHA. Mortgage lenders were delighted to write mortgages in our completely nationalized market in which the government backs literally 99% of all mortgages and the Federal Reserve bought $1.2 trillion in mortgages that no sane private investor would touch.</p>

<p>Allow me to cite my source:</p>

<p><a href="https://www.reuters.com/article/us-fannie/fannie-mae-seeks-8-4-billion-from-government-after-loss-idUSTRE64935O20100511" rel="nofollow noreferrer">Fannie Mae seeks $8.4 billion from government after loss</a></p>

CC BY-SA 4.0
2018-11-12T07:05:44.567Z
2018-11-12T07:05:44.567Z
Daniel
<p>Prolonged or long economic crises have generally been preceded by bubbles. Bubbles are generally induced by innovations in the market. Also, bubbles aren't new and certainly not modern occurrences. You can find plenty of cases of bubbles leading to long economic contractions: Tulip mania in Holland (1634-1637), South Sea Bubble in the UK (1711), Florida real estate craze of 1926 etc. </p>

CC BY-SA 3.0
2017-03-03T18:19:53.560Z
What exactly is a 'long term economic crisis'?
Giskard
CC BY-SA 3.0
2017-03-03T21:33:33.647Z
But you did not improve your answer in any way...you merely exchanged one word to another with the same vague meaning.
Giskard
CC BY-SA 3.0
2017-03-06T15:54:21.113Z
@denesp, what is vague in the post? as you said, I exchanged the words, but what is not clear to you?
london
CC BY-SA 3.0
2017-03-06T17:18:26.263Z
"Prolonged or long economic" is not an exact definition, but okay, let us skip over it. "have generally been preceded by bubbles" This is a very strong claim without any evidence. "Bubbles are generally induced by innovations in the market." Strong claim without evidence. And then some old examples are listed, when the question ask for the reason behind "all modern crises". (Btw. what was the "innovation" that caused the bubble in the tulip market?)
Giskard
CC BY-SA 3.0
2017-03-07T14:02:59.520Z
Okay, you can read about the 'innovation' in tulipmania by googling. In the recent housing bubble, the innovation was securitisation - it made credit cheaper in the run up to the crisis.
london
CC BY-SA 3.0
2017-03-03T16:56:00.897Z
2017-03-03T18:32:00.807Z
2017-03-03T18:32:00.807Z
london
<p>How do we go about fixing (or at least improving) the housing crisis? 
I don’t think I’ve heard any dissenting voices to the opinion that the housing crisis that we’re in is being caused by the imbalance of supply and demand. 
We’re not building enough homes and our population is growing. 
It doesn’t take a Nobel winning economist to work out what that will lead to.</p>

<p>Since the 1980’s - we have seen an increasing consolidation amongst house builders. This means that small and medium sized builders and developers now build approximately 60-70% fewer homes than they used to and it means that 70% of our homes are delivered by about 10 different house builders.</p>

<p>Why is this important?</p>

<p>Well, consolidation reduces diversity and choice, and increases the power of the oligopoly. 
This means that the big 10 can build what they like, when they like and that isn’t good for supply. Is it that surprising then that a recent RIBA report suggested that 75% of us would never buy a new-build home.
How can we improve both the quantity AND quality of the new homes being built? 
Here are 5 actionable suggestions for Mr. Sharma, our new housing minister:
1. Create a farmer’s market of housing, where large sites are broken into smaller ones, where small and medium sized developers and builders can make a difference.
Exactly the same phenomenon has taken place in the supermarket industry. We have seen a consolidation of grocery shops so that the vast majority of our food purchases are through the big supermarket chains. We used to spend about 2 hours cooking every day and we now spend about 27 minutes. This is mainly due to the rise of the ‘ready-meal’ - which are tasty and convenient, but have too much salt and too much sugar in them and our nation is getting more obese as a result. The rise of the farmer’s market increases diversity and encourages that back to basic cooking from ingredients.
2. Disincentivise land trading by killing the planning arbitrage market.
It makes no sense that planning generally now costs tens of thousands of pounds and takes over a year on average to be successful. 
3. Scrap stamp duty! I know that this is not really your bag, but please have a word with Mr. Hammond. Stamp duty is a (potentially) huge tax on transactions which discourages people to move out of their homes.
If we want the elderly to move out of their large homes and downsize into new homes freeing up space for the younger, we need to make the transaction as cheap as possible for them. 
If we want families living near good schools to move on when their kids leave the school, we need to make that easy for them and cheap for them to do so.
4.Introduce a capital gains tax on all home profit sales over a certain level.
Fourth (again, a word to Philip), to offset the lack of tax take from stamp duty and to discourage flipping of homes and the holding of homes as investment assets, we should introduce capital gains tax on all home profit sales over a certain level.
5. Improve affordable housing. At the moment, policy dictates that developers should provide around 50% of new housing as affordable (borough/council dependent). In reality this never happens because of ‘viability assessments’.
Additionally, once a developer has agreed to provide the affordable homes, they are strongly incentivised to make these as low quality and as cheap as possible.
Instead, councils should build their own affordable housing - they know that building higher quality will pay dividends over the long-term as maintenance and refurbishment (whole life-cycle costs) are reduced, so they should do so, just like they used to.</p>

<p>If you found this article insightful, useful or even just amusing, read it in its entirety on our blog - How to solve the housing crisis: An open letter to the government<a href="https://www.inhabithomes.co.uk/custom-build-blog/how-to-solve-the-housing-crisis?utm_source=Quora&amp;utm_campaign=Answers" rel="nofollow noreferrer">enter link description here</a>.</p>

<p><a href="https://www.inhabithomes.co.uk/custom-build-blog/how-to-solve-the-housing-crisis?utm_source=Quora&amp;utm_campaign=Answers" rel="nofollow noreferrer">https://www.inhabithomes.co.uk/custom-build-blog/how-to-solve-the-housing-crisis?utm_source=Quora&amp;utm_campaign=Answers</a></p>

CC BY-SA 3.0
2017-07-26T16:16:31.817Z
2017-07-26T16:16:31.817Z
Aly D'Souza
<p>Bubbles occur in every market. Along with the housing bubble in the United States we also faced the "Alpaca bubble" in 2010: <a href="https://priceonomics.com/when-the-great-alpaca-bubble-burst/" rel="nofollow noreferrer">https://priceonomics.com/when-the-great-alpaca-bubble-burst/</a>.</p>

<p>Over speculation in an unfortunately common phenomena and property due to its need to raise a large amount of upfront capital to construct buildings often faces periods of over speculation followed by a rapid return to fair market value (bubble bursting). </p>

<p>2008 was a particularly bad example of this but by no means the only example of over speculation in the housing market. The examples you mentioned were also due to over speculation in the housing market. I would disagree with your claim that most modern crisis (whatever that means) are due to the housing market as this simply isn't true.</p>

CC BY-SA 3.0
2017-03-03T16:12:33.623Z
2017-03-03T16:12:33.623Z
TheSaint321
<p>In a fractional reserve monetary system <a href="http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf" rel="nofollow noreferrer">loans create money and loan repayments destroy money</a>. Most bank lending in modern times is for <a href="https://qz.com/586664/lord-adair-turner-on-the-largely-fictional-world-of-finance/" rel="nofollow noreferrer">the purpose of purchasing real estate</a>. So the amount of money that exists in the economy is closely tied to the enthusiasm for purchasing real estate. You could not really make this kind of statement for any other class of asset - this is why the housing market in particular has such an impact on the economy. During the upswing of a housing bubble the money supply will be growing fast, but when the bubble bursts the money supply will fall (as existing mortgages are repaid) leading to recession. The whole point of QE is to <a href="https://en.wikipedia.org/wiki/Quantitative_easing" rel="nofollow noreferrer">counteract this fall in the money supply</a>.</p>

<p>Confusingly economists use the word "<a href="https://en.wikipedia.org/wiki/Demand_deposit" rel="nofollow noreferrer">credit</a>" to describe (most of) the money we use in the economy, so many people do not realise that the "credit crunch" was in fact a "money crunch".</p>

<p><a href="https://en.wikipedia.org/wiki/Hyman_Minsky" rel="nofollow noreferrer">Hyman Minsky</a> is the most famous economist that would subscribe to these kind of views. You might also want to look up the term <a href="https://en.wikipedia.org/wiki/Credit_cycle" rel="nofollow noreferrer">credit cycle</a>.</p>

<p>By the way, none of these views are mainstream. Mind you the mainstream economists did not see the last crash coming, so you should not really expect them to explain what happened.</p>

CC BY-SA 3.0
2017-05-26T00:21:24.263Z
From the first link (BOE 2014 Q1 bulletin): "If the consumer were then to pay their credit card bill in full at the end of the month, its bank would reduce the amount of deposits in the consumer’s account by the value of the credit card bill, thus destroying all of the newly created
money." So repaying loans really does reduce the money supply in a fiat money/credit system. I always wondered: once you create the money/loan, is the money supply permanently increased? Fascinating. That's probably why Japan has been in deflation for decades. They're still paying off the debt from the 80s bubble.
nmit026
CC BY-SA 3.0
2017-04-03T14:01:31.493Z
2017-05-26T09:11:55.937Z
2017-05-26T09:11:55.937Z
Mick
<p>I was writing some notes about the last economic and financial crisis and I noticed that all these recent crisis start with a housing bubble. Beside the 2007-08 US's one, also Japanese crisis in the beginning of the 90s and Spain's crisis, just to cite a couple of them, all have started by housing price boosting. </p>

<p>Why are all recent crisis starting with a housing bubble? Is something related to modern economies or just a coincidence?</p>

CC BY-SA 3.0
2017-03-03T15:34:50.927Z
No, there was also the Cuban missile crisis, and the oil crises of '73 and '79. Perhaps you could define what exactly you mean by 'all crises'.
Giskard
CC BY-SA 3.0
2017-03-04T08:08:09.170Z
I meant economic and financial crisis
PostDocing
CC BY-SA 3.0
2017-03-04T08:34:37.073Z
And what is an economic crisis? Is the aftermath of world war II an economic crisis? How do you define it? Are the oil crises of '73 and '79 counterexamples to your conjecture?
Giskard
CC BY-SA 3.0
2017-03-04T10:36:42.883Z
It seems you don't want to understand; I'll edit the question one last time then who is willing to answer please do, who is willing to criticize for the sake of doing please go ahead
PostDocing
CC BY-SA 3.0
2017-03-04T14:07:11.263Z
I honestly think the question is ill-defined. (For example your edit has already changed the meaning significantly, so perhaps it was not as clear as you thought it was.) If you google "venezuela crisis" you will find that a lot of people say that Venezuela is currently experiencing a crisis as well. It was not caused by a bubble. Would you accept this as a counterexample?
Giskard
CC BY-SA 3.0
2017-03-04T14:10:08.097Z
I think perhaps what you mean is: "Here are these three crises (US, Japan, Spain). They were all started by a housing bubble. Is there a specific economic reason for this?" Without generalizing the rule to all crises the question would be quite clear...
Giskard
CC BY-SA 3.0
2017-03-06T15:53:27.837Z
@denesp, you are making it complicated for no reason. The question is generic, if you can offer a good answer pls post it so that everyone benefits from your contribution. Or correct it before throwing question after question at Alessandro. Clearly, Alessandro does not appear to hold a PhD in Econ and he may not be a native English speaker to articulate the issue he wants to ask about.
london
<macroeconomics><financial-crises><economic-bubble>
Why recent crises all started with a housing bubble?
PostDocing
# Why recent crises all started with a housing bubble?

(Asked by: username_0 on 2017-03-03)

I was writing some notes about the last economic and financial crisis and I noticed that all these recent crisis start with a housing bubble. Beside the 2007-08 US's one, also Japanese crisis in the beginning of the 90s and Spain's crisis, just to cite a couple of them, all have started by housing price boosting.

Why are all recent crisis starting with a housing bubble? Is something related to modern economies or just a coincidence?

**Tags:** macroeconomics, financial-crises, economic-bubble
> **Comments:**
> **username_1**: No, there was also the Cuban missile crisis, and the oil crises of '73 and '79. Perhaps you could define what exactly you mean by 'all crises'.  
> **username_0**: I meant economic and financial crisis  
> **username_1**: And what is an economic crisis? Is the aftermath of world war II an economic crisis? How do you define it? Are the oil crises of '73 and '79 counterexamples to your conjecture?  
> **username_0**: It seems you don't want to understand; I'll edit the question one last time then who is willing to answer please do, who is willing to criticize for the sake of doing please go ahead  
> **username_1**: I honestly think the question is ill-defined. (For example your edit has already changed the meaning significantly, so perhaps it was not as clear as you thought it was.) If you google "venezuela crisis" you will find that a lot of people say that Venezuela is currently experiencing a crisis as well. It was not caused by a bubble. Would you accept this as a counterexample?  
> **username_1**: I think perhaps what you mean is: "Here are these three crises (US, Japan, Spain). They were all started by a housing bubble. Is there a specific economic reason for this?" Without generalizing the rule to all crises the question would be quite clear...  
> **username_2**: @denesp, you are making it complicated for no reason. The question is generic, if you can offer a good answer pls post it so that everyone benefits from your contribution. Or correct it before throwing question after question at Alessandro. Clearly, Alessandro does not appear to hold a PhD in Econ and he may not be a native English speaker to articulate the issue he wants to ask about.  

---

## 5 answers

### Answer by username_6 on 2017-04-03. Score: 3 | Accepted answer

In a fractional reserve monetary system [loans create money and loan repayments destroy money](http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf). Most bank lending in modern times is for [the purpose of purchasing real estate](https://qz.com/586664/lord-adair-turner-on-the-largely-fictional-world-of-finance/). So the amount of money that exists in the economy is closely tied to the enthusiasm for purchasing real estate. You could not really make this kind of statement for any other class of asset - this is why the housing market in particular has such an impact on the economy. During the upswing of a housing bubble the money supply will be growing fast, but when the bubble bursts the money supply will fall (as existing mortgages are repaid) leading to recession. The whole point of QE is to [counteract this fall in the money supply](https://en.wikipedia.org/wiki/Quantitative_easing).

Confusingly economists use the word "[credit](https://en.wikipedia.org/wiki/Demand_deposit)" to describe (most of) the money we use in the economy, so many people do not realise that the "credit crunch" was in fact a "money crunch".

[Hyman Minsky](https://en.wikipedia.org/wiki/Hyman_Minsky) is the most famous economist that would subscribe to these kind of views. You might also want to look up the term [credit cycle](https://en.wikipedia.org/wiki/Credit_cycle).

By the way, none of these views are mainstream. Mind you the mainstream economists did not see the last crash coming, so you should not really expect them to explain what happened.

> **Comments:**
> **username_7**: From the first link (BOE 2014 Q1 bulletin): "If the consumer were then to pay their credit card bill in full at the end of the month, its bank would reduce the amount of deposits in the consumer’s account by the value of the credit card bill, thus destroying all of the newly created money." So repaying loans really does reduce the money supply in a fiat money/credit system. I always wondered: once you create the money/loan, is the money supply permanently increased? Fascinating. That's probably why Japan has been in deflation for decades. They're still paying off the debt from the 80s bubble.  

---

### Answer by username_3 on 2018-11-12. Score: 0

The most recent crises that popped in 2009, had actually gone in several years before which lead up to that crisis point and it was the result the collusion of the Central State and banks to extend home ownership to millions of citizens who did not qualify for that burden.

By the way, it did not stop a year later. The Federal government continued to pour tens of billions of dollars into this "home ownership should be for everyone" project via subsidies to Fannie Mae, Freddie Mac and FHA. Mortgage lenders were delighted to write mortgages in our completely nationalized market in which the government backs literally 99% of all mortgages and the Federal Reserve bought $1.2 trillion in mortgages that no sane private investor would touch.

Allow me to cite my source:

[Fannie Mae seeks $8.4 billion from government after loss](https://www.reuters.com/article/us-fannie/fannie-mae-seeks-8-4-billion-from-government-after-loss-idUSTRE64935O20100511)


---

### Answer by username_2 on 2017-03-03. Score: 0

Prolonged or long economic crises have generally been preceded by bubbles. Bubbles are generally induced by innovations in the market. Also, bubbles aren't new and certainly not modern occurrences. You can find plenty of cases of bubbles leading to long economic contractions: Tulip mania in Holland (1634-1637), South Sea Bubble in the UK (1711), Florida real estate craze of 1926 etc.

> **Comments:**
> **username_1**: What exactly is a 'long term economic crisis'?  
> **username_1**: But you did not improve your answer in any way...you merely exchanged one word to another with the same vague meaning.  
> **username_2**: @denesp, what is vague in the post? as you said, I exchanged the words, but what is not clear to you?  
> **username_1**: "Prolonged or long economic" is not an exact definition, but okay, let us skip over it. "have generally been preceded by bubbles" This is a very strong claim without any evidence. "Bubbles are generally induced by innovations in the market." Strong claim without evidence. And then some old examples are listed, when the question ask for the reason behind "all modern crises". (Btw. what was the "innovation" that caused the bubble in the tulip market?)  
> **username_2**: Okay, you can read about the 'innovation' in tulipmania by googling. In the recent housing bubble, the innovation was securitisation - it made credit cheaper in the run up to the crisis.  

---

### Answer by username_5 on 2017-03-03. Score: 0

Bubbles occur in every market. Along with the housing bubble in the United States we also faced the "Alpaca bubble" in 2010: <https://priceonomics.com/when-the-great-alpaca-bubble-burst/>.

Over speculation in an unfortunately common phenomena and property due to its need to raise a large amount of upfront capital to construct buildings often faces periods of over speculation followed by a rapid return to fair market value (bubble bursting).

2008 was a particularly bad example of this but by no means the only example of over speculation in the housing market. The examples you mentioned were also due to over speculation in the housing market. I would disagree with your claim that most modern crisis (whatever that means) are due to the housing market as this simply isn't true.


---

### Answer by username_4 on 2017-07-26. Score: -1

How do we go about fixing (or at least improving) the housing crisis?
I don’t think I’ve heard any dissenting voices to the opinion that the housing crisis that we’re in is being caused by the imbalance of supply and demand.
We’re not building enough homes and our population is growing.
It doesn’t take a Nobel winning economist to work out what that will lead to.

Since the 1980’s - we have seen an increasing consolidation amongst house builders. This means that small and medium sized builders and developers now build approximately 60-70% fewer homes than they used to and it means that 70% of our homes are delivered by about 10 different house builders.

Why is this important?

Well, consolidation reduces diversity and choice, and increases the power of the oligopoly.
This means that the big 10 can build what they like, when they like and that isn’t good for supply. Is it that surprising then that a recent RIBA report suggested that 75% of us would never buy a new-build home.
How can we improve both the quantity AND quality of the new homes being built?
Here are 5 actionable suggestions for Mr. Sharma, our new housing minister:
1. Create a farmer’s market of housing, where large sites are broken into smaller ones, where small and medium sized developers and builders can make a difference.
Exactly the same phenomenon has taken place in the supermarket industry. We have seen a consolidation of grocery shops so that the vast majority of our food purchases are through the big supermarket chains. We used to spend about 2 hours cooking every day and we now spend about 27 minutes. This is mainly due to the rise of the ‘ready-meal’ - which are tasty and convenient, but have too much salt and too much sugar in them and our nation is getting more obese as a result. The rise of the farmer’s market increases diversity and encourages that back to basic cooking from ingredients.
2. Disincentivise land trading by killing the planning arbitrage market.
It makes no sense that planning generally now costs tens of thousands of pounds and takes over a year on average to be successful.
3. Scrap stamp duty! I know that this is not really your bag, but please have a word with Mr. Hammond. Stamp duty is a (potentially) huge tax on transactions which discourages people to move out of their homes.
If we want the elderly to move out of their large homes and downsize into new homes freeing up space for the younger, we need to make the transaction as cheap as possible for them.
If we want families living near good schools to move on when their kids leave the school, we need to make that easy for them and cheap for them to do so.
4.Introduce a capital gains tax on all home profit sales over a certain level.
Fourth (again, a word to Philip), to offset the lack of tax take from stamp duty and to discourage flipping of homes and the holding of homes as investment assets, we should introduce capital gains tax on all home profit sales over a certain level.
5. Improve affordable housing. At the moment, policy dictates that developers should provide around 50% of new housing as affordable (borough/council dependent). In reality this never happens because of ‘viability assessments’.
Additionally, once a developer has agreed to provide the affordable homes, they are strongly incentivised to make these as low quality and as cheap as possible.
Instead, councils should build their own affordable housing - they know that building higher quality will pay dividends over the long-term as maintenance and refurbishment (whole life-cycle costs) are reduced, so they should do so, just like they used to.

If you found this article insightful, useful or even just amusing, read it in its entirety on our blog - How to solve the housing crisis: An open letter to the government[enter link description here](https://www.inhabithomes.co.uk/custom-build-blog/how-to-solve-the-housing-crisis?utm_source=Quora&utm_campaign=Answers).

<https://www.inhabithomes.co.uk/custom-build-blog/how-to-solve-the-housing-crisis?utm_source=Quora&utm_campaign=Answers>


---

