> The rental policies there must then suppress house prices because its much more cost effective to rent than to buy
It's not that straightforward: Someone have to buy the units that goes onto the rental market as well, so it depends on how attractive property investment is vs. other investment opportunities.
In the UK, cheap access to "buy to let" mortgages coupled with high returns as people were unable to afford to purchase and thus bid up the rental market certainly helped push prices up during the bubble (thus pricing more people out of the market).
how is it possible to have both cheap access to mortgages, and yet have houses be unaffordable - that seems contradictory to me - and yet it does happen. Economics baffles me o_O
Cheap access to mortgages encourages people to buy. Lots of people. You are not acting in isolation. The price of housing jumps.
Adding good new stock takes time. Its not simply a matter of the time to build a new house. Its the time to develop the new area, zoning, commercial properties people want close, infrastructure, etc. It can easily take a decade in highly regulated areas.
So supply can't shift to meet demand. Prices rise because lots of people see mortgages they can afford, and jump on it. Then speculators get in the game, and tie up stock without anyone living in it. Flippers are fixing up houses, instead of letting them out. So a bubble is formed because people with good intentions made mortgages too easy, and prices climb.
It's not that straightforward: Someone have to buy the units that goes onto the rental market as well, so it depends on how attractive property investment is vs. other investment opportunities.
In the UK, cheap access to "buy to let" mortgages coupled with high returns as people were unable to afford to purchase and thus bid up the rental market certainly helped push prices up during the bubble (thus pricing more people out of the market).