More importantly, the international evidence suggests that we should be wary of UK-specific explanations. The fact is that there has been a boom in house prices across almost all advanced countries.
Indeed, the rate of increase in the UK is by no means especially high. Since the beginning of 2020 house prices have risen by more in New Zealand, the US, Canada, and even Germany. This suggests that we should be looking for an international explanation.
Interestingly, the four factors that I listed above are international in character, with only minor variations between them.
This applies especially to the “race for space”. How much of the rise in house prices might this factor account for?
The Bank of England recently produced the results of a study that suggested that about half the increase in UK house prices over the last two years could be down to this factor. You can see the effects clearly in the data.
Over the year to April 2021, the prices of four-bedroom properties rose by about 8pc compared to 0.5pc for properties with only one bedroom.
Moreover, in the year to October 2021 the price of detached houses rose by 14pc, compared to the price of all flats rising by 6.6pc. The price increase for semi-detached and terraced houses was somewhere in between.
What will happen to the “race for space” as the pandemic eventually subsides? Its influence may conceivably fade as things return to something like the pre-pandemic norm. But I suspect that they will never quite get back to how they were.
True, some large firms have insisted on an early and full return to the office. But it seems likely that many will continue to accept, and may even welcome, partial working from home.
Over and above this, the trend over the coming years and decades is going to be towards a shorter working week. The result of these two factors is that, collectively, we will continue to put a higher value on domestic space.
The second major influence is going to be what happens to interest rates. Again, this is a global factor and whatever happens to interest rates in this country is likely to be shared, to a greater or lesser extent, by other advanced countries.
The recent facts are really striking. The global ratio of average house prices to average earnings (HPE) is at a record high, as it is in the UK.
What has made these high ratios sustainable is very low interest rates. Indeed, in the UK, the ratio of average mortgage payments to median after tax full time pay is 38pc, roughly in line with its long-term average.
In the past, housing corrections have been preceded by this so-called “affordability ratio” reaching 50pc. Clearly, on this metric, we are not yet in correction territory.
It seems likely that the interest rate factor interacts critically with the demand for space. After all, it is all very well placing a higher value on space when you can afford the consequences of acquiring it.
But what happens if interest rates go up significantly, thereby dramatically increasing the cost of space? In those circumstances, the increased desire for space may end up being controlled by higher interest rates, rather than finding expression in higher house prices.
So what is the upshot? I suspect that there has been a step change in the value that we place on space with the result that we will not return to the same old normal values for metrics like the HPE ratio or the affordability ratio.
But even so, there can still be cycles in property prices. And if interest rates in this country go up by only 2pc then, on the affordability measure, we would be entering price correction territory.
Given the structural changes in the market, perhaps we shouldn’t expect 2pc to be a critical number. Maybe it should be more like 3pc. That would probably imply mortgage rates of something like 4pc, up from just 1.5pc now.
In the wider sweep of our history, this number does not seem fantastical. Yet, with current levels of mortgage debt it would surely cause the housing market great difficulty.
There may not be a correction any time soon but if, as I suspect, interest rates are going to have to rise a fair bit, then a correction is to be expected, if not sooner then later.
Roger Bootle is chairman of Capital Economics