Inflation: A Blessing or a Curse?

Inflation has generated large wealth shifts among the various population groups involved in housing. The most significant shift is a gain of mortgage borrowers at the expense of lenders and savers. Homeowners, however, have not profited as uniformly as is widely believed, and landlords have generally suffered a sharp decline of net operating income. The severe cycles in residential building since the early 1970s reveal the destabilizing impact of inflation. The housing sector as a whole obtained a disproportionate share of total credit, but its growth and quality improvement did not accelerate apace. Credit expansion without equivalent expansion of real capital illustrates one of the striking maladjustments during inflation. Under a new regime of sustained price stability, housing will still be exposed to prolonged aftereffects of the inflation, notably the reconstruction of a shattered mortgage finance system. The recent trend toward larger and more luxurious dwellings will give way to leaner products. Whether the viability of the rental sector can be restored remains questionable. Under continued or renewed inflation, however, the prospects for housing are far worse.