It is worth disentangling three distinct strands in the current bubble narrative. The first revolves around Help to Buy, the government's flagship scheme for providing 5 per cent mortgages. Loose lending was a key driver of the last boom, so critics worry a new mass market in subsidised loans will generate another.
There is something in this. So far, Help to Buy only applies to new homes and has funded some 12,500 purchases - against an annual backdrop of about one million housing transactions. But next year the scheme will be extended to the much larger second-hand market, where the government wants it to support £130bn of lending over three years.
This is transformative. Over the past three years, lenders have extended mortgages worth £436bn, suggesting Help to Buy will boost the market by 30 per cent. It is all too easy to imagine prices rising as first-time buyers take advantage, only to drop back when the stimulus is removed in 2017 - causing financial distress in the process. If a bubble is defined as an unsustainable boom, any gains prompted by Help to Buy surely count.
But calling a bubble three years early seems alarmist, even absurd. At this point, prices are growing by 2 to 5 per cent year-on-year, depending which index you believe - barely above the inflation rate. They may be hitting new highs by some measures - the "official" index used by the Office of National Statistics surpassed its 2007 peak last week, attracting front page headlines. But the Halifax index is still down 15 per cent in nominal terms, and all the indices are well down in real terms. Moreover, transaction volumes are running at about 70 per cent of their average level since the 1995 housing trough. Outside London, confidence is only just returning after a six-year bear market.
The current debate about the Help to Buy bubble is probably a product of politics as much as economics. The party conference season is under way, and tacitly rejecting the controversial policy helps the Liberal Democrats offer a political vision distinct from that of the Tories, their coalition partners. Help to Buy also fits into a wider debate about the quality of Britain's economic recovery, which is currently based on the old wheeze of consumer spending rather than the "march of the makers" hailed in George Osborne's 2011 Budget. Business secretary Vince Cable's grumbles to this effect have been well amplified by the media, for which stories about political divisions and housing are easy fodder.
This brings us to the second strand of today's bubble talk. I interviewed Vince Cable in the spring of 2009. He had just published The Storm, an analysis of the financial crisis that placed substantial weight on the pre-crash "housing bubble". When I asked him whether he thought the correction had run its course - house prices had by then fallen 20 per cent - he merely cited an Organisation for Economic Co-operation and Development (OECD) study claiming the UK market was, at its peak, 30 per cent overvalued relative to incomes.
My guess is that Mr Cable, a former economist for Royal Dutch Shell, believes the housing bubble never really deflated. This is a respectable enough view among economists. The consultancy Capital Economics repeats tirelessly that prices remain high relative to incomes. The OECD periodically issues similar warnings - its barometer currently suggests UK houses are 22 per cent overvalued relative to incomes, and 31 per cent relative to rents. High house prices and low interest rates may be two sides of the same coin - which rising rates will ultimately devalue.
I have more sympathy with these bubble fears, even though they've been around for a decade. The US housing recovery has taken a knock since the Federal Reserve hinted it would taper quantitative easing back in May; mortgage rates have risen by nearly a percentage point in just four months, choking off housing affordability. Yet, it must by now be clear that central bankers will only allow asset prices to deflate very slowly. And the interest rate supercycle, if such a thing exists, cannot be all important. Long-term borrowing rates also rose steadily in the 1960s and 1970s without suppressing house prices; in fact, inflation may have stoked them.
To my mind, the one area of UK housing that is sending off clear bubble signals is central London. This is our third strand. It is a very limited market, yet also an extremely visible one - not least to politicians and the national media.
House prices in Knightsbridge are now 45 per cent higher than at the 2007 peak, following four years of unprecedented outperformance. At the same time, rents in prime central London have been gently falling since 2011. Business confidence, which drives the corporate lettings market, has remained weak. Housebuilding is also forecast to more than double over the next four years. Weak lettings, rocketing supply and speculative international capital flows do not strike me as solid market foundations.
Bubble spotters need to be clear what they are talking about - government intervention, low debt yields or central London. The current confusion is perhaps the inevitable product of a market in which generalisation is even more dangerous than usual. If I have one gripe with the second leg of Help to Buy, it is that it is to be applied indiscriminately across the country. It may well be appropriate in Doncaster. It is certainly not in London.
