Man, I always say Argentina is anachronistic: we've had 15 years of no mortgages and we are starting to have them now, while there is an anti-mortgage sentiment in the world.
> In the UK is that housing has become unaffordable for most of the population - precisely because mortgages made it possible to buy property as an investment.
Without going too deep, there is a problem with saying unaffordable. Are we talking about indigents? Or that the middle class 25-35 doesn't have the access to houses the previous generation had? They are very different propositions.
I would take for granted that mortgages raise the price of housing, simply because it helps foster demand more than supply. But it also means more houses are sold, which also means more houses are built. The goal is not to have cheap housing, is for the biggest amount of people getting housing, and banning mortgages will reduce both prices and people getting housing.
> At the same time the market has been deliberately starved of affordable housing as a matter of national policy.
I can't comment or debate about this for UK because I don't know what this is about. Any government that puts a policy to control what is built is likely going to have bad effects. It is true that luxury housing is providing higher returns than affordable in the U.S. In argentina its a bit different, due to historically no credit: basically the only buyers of new property in Argentina are investors, because those are the only ones that had the capital to purchase in advance. Hence for a decade, the market was flooded with cheap-construction rental homes. I expect the introduction of mortgages to create a market for long-term quality housing.
> So your point makes no sense. What are you going to do with capital while you're saving it for a property purchase? Keep it under a mattress?
Probably low-yield money funds if you are sophisticated. Home-owners are ill-advised to mortgages their home to invest in the stock market: using your capital to buy a home to invest in stocks is basically the same.
> In reality, without mortgages, there would be far more investment cash available, because the money would be out there doing something useful, not trapped and congealed inside a fixed asset.
If a man buys a house at 100k, his capital is now owned by the former seller, so the amount of capital in circulation is the same. The point is what happens when someone wants to buy a house: they have decades of saving money in low yields. This can be seen in Argentina again, as there is a mortgage boom, 30 year olds are making cash-down payment, even though market participation is almost non-existent. People were saving the cash in their mattresses.