House Prices: The greatest confidence trick ever perpetrated on the British Public?

You know the drill, six months ago some chinless wonder in the pub talking loudly about how much the Equity on his house has increased in the last two years, the same chap now crying into his beer over the 'drop' in house prices.......

But here's the rub, was he ever any better off?

Yes, the price of his house on the open market has increased, so on paper his net value has gone up as well, but so has the value of other properties in similar locations in the same time period, so if he is moving house, there is no change in relative values. What has changed is the amount of money that he would have been borrowing to fund his move, and the amount of commission that the Estate Agent earns on the deal.

so unless you are liquidating your Property, are Mortgage free, have made a speculative purchase in an area that is becoming more desirable, or have renovated or significantly improved the property with the related investment of time and money, then you haven't significantly improved your position, you are simply paying more money in Interest to a bank.

So why do people do it? Why are the British unique in Europe for being so obsessed with home ownership, and why are they prepared to pay a significant chunk of their income to a Bank in return for no increase in the proportion of the property that they actually own?

Supply and demand has a significant role to play, the availability of property in the south of England is significantly below demand, but that doesn't make sense of the insane prices being paid.

I believe that whilst Estate Agency is an unregulated Industry, and Banks are allowed to offer Mortgages so far in advance of that which their clients can possibly expect to repay in their lifetime, then there is a vested interest in the artificially inflating property prices and a willing market of people who will convince themselves that they are making money on Property whilst in fact they are simply giving money to the Bankers and Estate Agents to no real benefit for themselves.

Maybe this time the downturn will inject a bit of reality into the situation, and the Government will finally move to make a more level playing field that will make areas other than the South will be desirable places to live with better working opportunities through inward investment, and will revise their thoughts on social housing to make the 'buy to let' Industry less attractive and creating a properly democratic market with options other than huge debt for the individual.