Abstract

Abstract: Using the Christiano-Fitzgerald filter to extract business and medium-term cycles, this paper
considers house price, gross domestic product per head and the ratio of the two for the UK over
1955–2020. It shown that, although the synchronisation of business and medium-term cycles is
associated with the largest price and ratio events, there a shift of volatility from the former to the latter
cycle range, which begins in the 1980s. The medium-term cycles are closely aligned. Indeed, the
phase-leading role of income over the others is at odds with current stabilisation policy thinking. The
trend in income growth is steady but then, around 2002 peters into a stagnant period. The trend in the
house price-income ratio is remarkably stable, but in the era of finance liberalisation, that stability is
disrupted both in trend and cycle. This appears to be altered by the adjustment to greater financial
accessibility. In effect, this trend traces the amount of debt that an agent’s income is expected to service
when purchasing a dwelling, or the real interest rate. Any return to the “normal” cost of capital could
have a severe impact on borrowers.