The fall in house prices could also lead to a negative multiplier effect, where the final fall in GDP is bigger than the initial because of the bandwagon effect.

4. Preventing a crash in the housing market will help prevent people have their home?s being repossessed. This is because with negative equity and high interest payments people would be unable to pay off their debts.

However there are arguments against the government trying to prevent a housing crash.

1. Firstly it is difficult to predict future house price inflation. For a long time people have argued house prices are overvalued but house prices continue to rise. Therefore it is hard to judge whether house price changes are due to pure speculation or have good fundamental reasons.

2. Housing is a private good, there are alternatives like renting a house.

3. If house prices are overvalued then there are benefits of letting their prices fall. Because it will help first time buyers be able to afford to buy a house, at the moment many key public sector workers are unable to buy. Cheaper house prices would increase efficiency of the economy and increase geographical immobility e.g.
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