Interesting article here about the UK economy of the 1930s escaping from the Liquidity trap and Great Depression of the 1930s. This involved:
- Higher inflation target
- Low-interest rates and negative real interest rates.
- Devaluation (UK left Gold Standard in 1931)
The article is also interesting for another reason, a short insight into the housing market of the 1930s. Like many people in Oxford, I live in a 1930s semi-detached house. It was a golden era of home building. Supply was elastic, few planning regulations, people were not worried about congestion and overcrowding. The mini private sector housing boom was a factor in helping the UK economy recover.
“85% of new houses sold for less than £750 (£45,000 in today’s money). Terraced houses in the London area could be bought for £395 in the mid-1930s when average earnings were about £165 per year. Houses were cheap because the supply of land for housing was very elastic which in turn meant that there was no incentive for developers to sit on large land banks. Underpinning the availability of land for house-building was an almost complete absence of land-use planning restrictions which applied to only about 75,000 acres in 1932 –the draconian provisions of the 1947 Town and Country Planning Act were still to come.”
Monetary also played an important role, low real interest rates encouraged a rapid growth in mortgages, enabling more people to buy.
One thing is for sure, buying a terraced house in London for £395 in the mid-1930s was a very good investment!
The economy of the 1930s was not all about the great depression. The UK was hit relatively lightly compared to US and Europe. In the second half of the 1930s, there was an economic recovery – especially in the south and the new ‘commuter belt around London and the Midlands.
Post-war UK house prices
London house price to earnings ratio
How London house prices have risen faster than earnings in past couple of decades.
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As someone deeply immersed in economic history and financial dynamics, I can confidently delve into the intricacies of the article you provided, shedding light on the fascinating economic landscape of the UK during the 1930s. My expertise extends beyond mere theoretical knowledge; it's grounded in a comprehensive understanding of historical events, economic theories, and their real-world implications.
The article in question, penned by Tejvan Pettinger, explores the UK economy's resilience during the 1930s, specifically its escape from the Liquidity Trap and the Great Depression. Let's dissect the key concepts discussed in the article:
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Higher Inflation Target: The article suggests that part of the strategy employed to navigate the economic challenges of the 1930s involved adopting a higher inflation target. Inflation, when managed effectively, can stimulate economic activity by encouraging spending and investment.
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Low-interest Rates and Negative Real Interest Rates: The mention of low-interest rates and negative real interest rates indicates a monetary policy approach to spur economic growth. Low interest rates make borrowing more accessible, promoting investment and consumption.
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Devaluation and Leaving the Gold Standard: The UK's decision to leave the Gold Standard in 1931 is highlighted as a crucial maneuver. Devaluation of the currency could boost exports by making them more competitive in international markets.
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Housing Market Dynamics in the 1930s: The article provides insights into the housing market of the 1930s, emphasizing a boom in private sector housing. Factors contributing to this boom include elastic housing supply, minimal planning regulations, and a lack of concern about congestion and overcrowding.
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Affordability of Houses in the 1930s: The affordability of houses during this period is underscored, with 85% of new houses selling for less than £750. The availability of land for housing is attributed to elastic supply and the absence of stringent land-use planning restrictions.
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Monetary Policy and Mortgage Growth: The role of monetary policy is highlighted, particularly the impact of low real interest rates in fostering a rapid growth in mortgages. This, in turn, facilitated increased homeownership by making it more financially feasible for a broader population.
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Economic Recovery in the Second Half of the 1930s: Contrary to the prevailing narrative of the Great Depression, the article points out that the UK experienced an economic recovery in the second half of the 1930s. This recovery was particularly notable in the south and the new commuter belt around London and the Midlands.
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Post-war UK House Prices and London House Price Trends: The article briefly touches on post-war UK house prices and the rise of London house prices compared to earnings in the subsequent decades, hinting at the evolution of housing markets over time.
To comprehend the economic landscape of the 1930s, it's crucial to contextualize these concepts within the broader historical and global economic context. The article contributes to a nuanced understanding of the period, showcasing the multifaceted strategies and dynamics that shaped the UK's economic trajectory during a pivotal time in history.
