The 1990'ish decline in house prices was bad because lots of people lost jobs, and couldn't keep up the mortgage or an equivalent rental.
As I have said frequently, Growth is only a necessity because we live in a deficit-based economy where the money supply is driven by the inexorable demands of compound interest.
But I believe a new factor is changing the picture economically to make a nonsense out of all the assumptions in respect of inflation, spare capacity of labour and so on.
This is implicit in the rise of the service economy in turn involving the rapid replacement of Labour with Capital in the form of Intellectual Property.
I addressed this subject, and much else in this paper at Lancaster University
http://www.opencapital.net/papers/Valueknowledge-based.pdf "Any economic unit can emit money. The serious problem is to get it accepted" Hyman Minsky
In the UK, we don't seem to be in such dire straits yet, because there's still an equity bubble driving the economy. As long as the City has some scraps it can throw to the mob, prices will continue to be stable and may even increase.
But if the bubble collapses, the housing market will also collapse. As 'investors lose confidence' (to use the magic phrase) bonuses will shrink, jobs will go, another credit squeeze is likely, and there will be a dramatic contraction.
But when I look at the current market, it seems more fragile now than then. And the reason I think that is the structure of mortgage payments. High borrowings at a relatively low interest rate. A 1% rise in rates is twice as painful when you're paying 5% on £200,000 than when you're paying 10% on £100,000.
Just as before, the banks have been falling over themselves to lend people absurd amounts of money relative to income. It wouldn't take a large increase in interest rates or unemployment to start tipping a significant number of people over the edge. From what I remember, the way it went was interest rates and repossessions up, first time buyers scared off, house prices fall slightly, first time buyers decide to wait and see it they fall further, house prices crash. But because of the huge capital sums involved now, any fall could well be longer and more painful than last time.
