I'll tell you why. Affordability is not the be-all and end-all. The fact that it reflects both the average size of mortgages and the interest rates that are paid on those mortgages is a good thing when you are thinking about short-term movements. But, when interest rates are currently well out of their normal range, as they are now, it is a curse. I much prefer the ratio of average house prices to average earnings. That is currently standing well above its long-term average. It is easy to reconcile these conflicting measures. Official interest rates at 0.5 per cent are at an all-time British low. Yet we all know that at some point they will have to go higher. Even if, as I believe, they top out much lower than previous peaks, that will still be a major change from the current level. If you assume a mortgage rate of 5 per cent or 6 per cent, the ratio of mortgage payments to income would be well above the historical average. What's more, the historical average has to be interpreted with care. In the bad old inflationary days, a high burden of mortgage debt would soon be relieved by increased pay. In other words, compared to those days, a given percentage of earnings going on mortgage payments now represents a bigger mortgage burden over the life of a mortgage. As for the fact that, on average, prices are still not back to their previous peak, the argument turns on what you think of the previous peak. If you think that it represented fair value, then the fact that it has not been regained suggests that current market strength is well-founded. But the previous peak was the top of the biggest house price boom in this country. After that peak, prices fell a good way but nowhere near enough to bring the market back to fair value. The result is that prices are now rising from a level that was itself much too high, in marked contrast to the United States and also to what happened in this country in the mid-1990s.

Nor is low mortgage lending particularly consoling. With transactions low, mortgage lending should also be low. For a time, a market can levitate as buyers and sellers both expect prices to rise. Indeed, in principle, it can move higher without any transactions taking place and therefore no new lending at all. Moreover, with many youngsters unable to afford to buy even at these low interest rates, their parents often step in to supply the wanted cash. Housing is a market unlike all others. For a start, we all have to live somewhere and there is much to be said for the benefits of ownership rather than renting. Second, there are huge tax advantages to owner-occupation. Third, unlike virtually any other asset category, the ordinary person can borrow easily and therefore gear up their investment. Fourth, because of their familiarity with it, people think they understand property in a way that they don't understand other assets – least of all pensions. The result is that it is easy to persuade people that property is a one-way bet and for speculative behaviour to take hold. This is happening now. It isn't only about greed. It is also about fear – the fear that if you don't buy now, you will never be able to afford to. This feeds on itself and a bubble inflates. The worst aspect of all this is that although particular individuals become better off as a result, people overall do not. The housing market is the greatest source of investment delusion known to man. As I said a few years ago, people are encouraged to believe in "money for nothing". As house prices go up, they are led to believe that as a society we are richer and yet if no new assets are produced, clearly we are no richer at all. On the contrary, we would be richer if a prolonged and pronounced building boom caused house prices to fall.

For this you cannot blame Mr and Mrs Average, whether driven by greed or fear. This is the result of a massive failure of public policy: tight control of building land and massive subsidies to home-ownership, combined with a lax immigration policy. I am not saying that each of these is necessarily wrong but the combination of the three has been catastrophic – wasting resources, distorting the economy, leading to misery and frustration for millions of people and diverting their energies into the zero-sum game of climbing the housing ladder. Politicians are constantly in search of purpose. That is why they meddle in so many things that should not concern them. Yet here is an area where they could have a transformative effect on so many people's lives. Moreover, what has gone wrong is a direct result of their actions. Will a government ever have the nerve to deliver radical reform? Don't hold your breath. For the next year or so at least, the housing market is cast in its time-honoured role of creating an illusion of prosperity and helping the governing incumbents to win the next election. Roger Bootle is managing director of Capital Economics. Contact him on roger.bootle@capitaleconomics.com Telegraph, London

