Significantly, uncertainty about house prices destabilizes expectations outside of the housing sector. When banks have troubled mortgages on their books, they may be required to increase their loss provisioning and implement troubled debt restructuring, which in turn reduces the amount of funds they have to lend. Uncertainty about house prices also clearly undermines consumer confidence and undercuts consumers’ willingness to spend.
Thus the income tax increases of 2008-9 represent – broadly speaking – no more than a return to rates that prevailed within the past decade or so and over a period when the economy was growing strongly.