George Osborne was adamant when he became chancellor of the exchequer three years ago that Britain's economic model had to change. Out would go an over-reliance on public and private debt, in would come the "march of the makers".
All that made a lot of sense, but sadly the new philosophy did not survive the flatlining of the economy in 2011 and 2012. The chancellor now wants the Bank of England's funding for lending scheme and his own help to buy programme to resuscitate the housing market and provide a feelgood factor before the next election.
Britain's recent economic history shows that this approach is unlikely to work in the long term: each boom in the residential property market since the early 1970s has been followed by a painful recession. A paper in the latest Economic Journal suggests, however, that it might not work in the short term either and governments should think twice before stimulating housing markets.
Martin Browning, Mette Gørtz and Søren Leth-Petersen looked at data from more than 90,000 Danish households over the course of a complete economic cycle in the 1980s and 1990s to see whether rising house prices stimulated consumer demand and thereby led to higher growth rates.
In Denmark, at least, the evidence is that households do not respond to a hot property market by going out on spending sprees. Housing is different from other assets, the authors suggest, because people need a place to live, and if prices are going up so does the cost of having a roof over your head.
Consumption is linked not to property prices but to real income growth. House prices go up when people are willing to pay more for property, and that happens when their earnings prospects improve. In the UK, that looks some way off.
It is possible, of course, that British consumers are more prone to money illusion than their Danish counterparts, and that there will be a sugar rush from rising prices. But we should know from long and bitter experience that a sugar rush is all it will be.
