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: new paper* Mr Buiter, now at the London School of Economics, argues that “Housing Wealth Isn’t Wealth”. The title, he admits, is a device to capture the attention of readers. It is not strictly true: the housing stock is valuable because of the shelter it provides now and in the future. The more housing we have, the wealthier we are. Mr Buiter’s point is that there is no wealth effect from falling house prices, because while there are winners and losers, the average consumer is no worse off. It is, he says, an idea that was first put to him a decade ago by Mervyn King, now governor of the Bank of England.

A shift in the value of housing does not affect household wealth in the aggregate, he says, because on average everyone is a tenant in his own home. A price fall hurts those who are “long” housing assets, ie, those who own more property than they will need over their lifetime (call them landlords). It benefits those who are “short” housing, ie, those who plan to buy a property or to trade up to a bigger one in the future (call them tenants). The average experience is of an owner-occupier who plans to live in his home until he dies. Unless he worries about how much he will leave to his heirs, he is indifferent to the value of his home.

Changes in house prices shift the distribution of household wealth: they do not alter it, says Mr Buiter. Yet in his schema, there is an exception to the rule: should prices fall because of a bubble bursting, then there is a wealth effect. Landlords are worse off because they lose the bubble value—the part that did not reflect fundamentals. But tenants are no better off, because the present cost of future housing services is unchanged.