2 MAY 1987, Page 18

Hitting the roof

ODD: we spend more on keeping ourselves housed than on 'anything else, but when the cost of houses goes up, we do not count that as inflation. If we did, we should see inflation running at 17 per cent, and rising. The figures are those of the Nationwide Building Society, which ex- pects that by the end of this year, house prices will be rising at an annual rate of 20 per cent. The societies like to argue that house 'prices are linked to what people can afford to pay for mortgages and thus to disposable incomes. If so, they have come unhitched. The Nationwide keeps an index which shows that the average house price has risen almost to three and three-quarter years' average earnings. That index reached its peak in 1973, at almost four and a quarter years' earnings. Immediately after that, house prices cracked, and prices in general soared. With house prices rising at 17 to 20 per cent and earnings now rising at 71/2 per cent, it will not be long before the index tests its peak again. Which would we then prefer — higher inflation, insol- vent house-owners, or some of each?