Weekly Energy Prices Update

With the war in Iran re-intensifying, I have returned to preparing a weekly energy update.

Crude

Brent is heading back towards $100 USD per barrel in the front month futures market.

Why Demand Rules the Housing Market

One boundary first. This is about the owner-occupier market, the price of buying a home to live in. Rents run on a different mechanism, the balance between demand for housing services and the dwellings available, and are a separate story. And, while both markets operate over the same total housing stock, what follows is about the price of buying.

Most goods compete for a share of your budget, and when they get expensive, someone makes more of them and the price eases. Housing competes far less than most, and in the places people most want to live it does closer to the opposite. It climbs toward whatever buyers can pay, because the supply that would hold the price down cannot easily be added there. In every market both sides - supply and demand - set the price. This essay is about why, in housing, the demand side rules, and why the supply side is so unusually unable to answer it. Take them in turn.

Update on the Iran War; solved, next please

Context

Each month I have taken the opportunity to reflect on the war in Iran and consider what might happen next. This is the fifth piece in that series, and the first written after the war it has been tracking formally ended.

It ended on 17 June, at Versailles, on the sidelines of the G7. Trump and Pezeshkian signed a memorandum of understanding declaring the war over, reopening the Strait of Hormuz, lifting the US naval blockade, issuing waivers for Iranian crude, releasing frozen assets, committing to a reconstruction package, and parking the nuclear question in a sixty-day negotiating window. "It's signed," Trump told reporters leaving the palace. "Signed in Versailles. Just signed it."

Weekly Energy Update

Terminal Gate Prices

Prices at the pump will rise this week as the fuel excise is partially restored. This will see a 16c/l increase at the pump. 

Weekly Energy Update

The Strait, Again

• MoU signed 17 June (the Islamabad Declaration); last week's "wait for a signature" call now settled.

• Question shifts from whether it's signed to whether it holds and whether oil flows through the strait of Hormuz again; the early signs are not good.

• Iran declared Hormuz closed again Saturday 20 June, citing Israeli strikes on Hezbollah (an Iranian proxy in Lebanon). Iran needn't enforce its closure, since the declaration alone most likely freezes marine insurance and uninsured tankers don't sail. 

Raw products (prices pre-date 20 June closure)

MMT in Three Layers

I often find myself in conversation with supporters of Modern Monetary Theory, and for a long time I was mystified by what they are saying. This is the MMT I meet in argument and online, not the academic literature, which is more careful and more divided than any single account allows.

Over time I have come to think of MMT as three layers: a small set of accounting identities, a set of mechanisms, and a set of normative principles. Some are uncontroversial. Others are either inconsistent with the rest of MMT or simply impractical. What is most evident is that the identities do not establish the mechanisms, and the mechanisms do not establish the principles. If anything the arrow runs the other way: the mechanisms flow from the principles, and the identities are recruited afterward to make the whole look derived.

Three of the identities are mainstream economics; nothing new there. MMT adds a fourth claim and presents it as though it too were an identity, but it is not. It is the first of the mechanisms, an institutional design proposal wearing accounting's clothes. Of the six mechanisms, four rest on a technically true core the mainstream accepts but add reasoning or consequences it does not accept; the other two are institutional proposals the mainstream rejects outright. None of the principles are mainstream at all.

MMT did get one thing right: a government that issues its own free-floating currency cannot be forced into nominal default on its own-currency debt, and even mainstream central banks now accept as much. The disagreement is about everything the theory builds on top of that one sound insight. I will take the layers in the order MMT usually presents them, from the arithmetic up to the politics, because that is the order you meet them in argument.

A Cruel Irony in the Housing Target

The Government wants 1.2 million new homes built in the five years to June 2029. It is not going to happen on current trends. The first five quarters delivered around 219,000 homes against a run rate that needs roughly 280,000 a year. The National Housing Supply and Affordability Council now expects the target to be met around September 2030, more than a year late, and that estimate predates the latest commodity-price shock.