AI Is Going to Smash House Prices Forever

Every week, another pundit crawls out of the financial media to tell you that artificial intelligence is going to be great for house prices. AI-driven productivity! A new wealth boom! Better property markets! Higher prices ahead!

It is fraudulent nonsense. And Fred Harrison is going to explain precisely why, in terms that any honest person can follow, because the stakes could not be higher. We are not talking about a market correction. We are not talking about a slowdown. We are talking about a collapse that has no floor under the current system, and a fiscal catastrophe that will make the 2008 crash look like a minor inconvenience.

Buckle up.

The Doom Loop Nobody Is Talking About

To understand what AI actually does to house prices, you need to understand what it does to the economy at three distinct but interlocking levels.

First, the labour market. When a firm adopts AI and raises its productivity, what happens? Its competitors are forced to respond. And how do they respond? They sack workers and replace them with AI. That response forces the first firm to go further. Which forces the competitors to go further still. This is not a one-time adjustment. It is a self-reinforcing, accelerating cycle with no natural endpoint. More and more workers are shoved out of employment. The downward spiral has no bottom under the current political regime.

I use AI myself, every day. I know what it can do. It can outperform an entire HR department in an afternoon. It can provide better legal analysis than a corporate lawyer. The productivity gains are real and they are stunning. But those gains flow to the firm, not the worker. And the worker is the economy.

Second, government revenue collapses. Follow the logic. Workers losing their jobs are not earning wages. Governments therefore cannot collect income tax. Workers not earning wages are not spending in shops. Governments therefore lose sales tax and VAT. Investors, watching the consumer economy contract, reduce their capital investment. Governments lose corporation and capital tax revenues too. The entire tax base of the modern state begins to dissolve simultaneously.

A senior banker recently made a public statement saying governments face losing all of their income tax revenue as AI eliminates jobs at scale. All of it. Think about what that means. There have been no fireworks in Westminster or Washington in response. No emergency summits. No honest reckoning. Just silence, because the people who run our political parties are the same people who profit from this transition and want it to go faster.

Third comes social implosion. A government losing revenue abandons its spending commitments. Welfare is cut. People with mortgages find they cannot fund them from shrinking welfare benefits. Desperate sellers slash prices. Banks confront a wave of defaults. The government, trapped, resorts to printing money. Inflation surges. The people on the lowest incomes find themselves squeezed out of the consumer market altogether. Social discontent metastasises. People turn toward autocracy to relieve their fury. Chaos follows.

In that scenario, nobody is buying houses. Nobody can. Prices go down. They stay down. The construction sector freezes. The rental market freezes. The secondary sales market freezes. Under the current system, there is simply no way back, because every further step AI takes into the economy deepens every one of these effects simultaneously.

House prices are a barometer. And what they are telling you, if you are honest enough to look, is that the storm has already begun.

A Wealth Tax on Tech Billionaires? Forget It.

When economists and politicians sense that something is going badly wrong, they reach for the wealth tax. Tax the Silicon Valley billionaires! Make them pay!

It will not work. History and international evidence are unambiguous on this point. The UK already has among the highest wealth taxes of any comparable nation, and they amount to barely three and a half percent of total national revenue. A wealth tax penalises people who genuinely create value while doing almost nothing to those who simply extract it. It is a political gesture, not a solution. It is a red herring dressed up as radicalism.

The Only Solution That Actually Works

Here is the truth that our political class is constitutionally incapable of delivering, because the people who fund our political parties are precisely the people who benefit from the current arrangement.

The answer is to shift the entire basis of public finance away from taxing wages, profits and transactions, and onto the taxation of economic rents. Specifically, natural resource rents, collected at the full rate of one hundred percent.

Let me explain what that means in the context of AI.

The AI revolution runs on physical infrastructure. Data centres consume extraordinary quantities of energy and water. They occupy land, often in locations where public investment has already paid for connectivity, for optical fibre networks, for power grids. When a data centre is sited next to publicly funded infrastructure in Virginia or outside London, it is harvesting a locational rent that was created by taxpayers. It is taking free money from the rest of us.

Additionally, the transmission of data across the economy depends on the radio spectrum and on copper and fibre cables running through the ground. Those are natural and publicly created resources. Their rental value is enormous.

If governments collected the full economic rent from these resources, including the land under data centres, the energy they consume, and the transmission infrastructure they depend on, two transformative things would happen.

First, the government’s lost income tax revenues would be replaced by a revenue stream that grows in direct proportion to AI’s expansion. The more AI takes over, the more rent it generates, the more revenue flows to the public purse to support the people AI displaces. The system would automatically fund its own victims.

Second, the profitability calculations of the Silicon Valley billionaires would change overnight. At the moment, they are pouring hundreds of billions of pounds into racing toward what they call superintelligence, an AI that eclipses human cognitive capacity entirely. Beings with no empathy, no moral conscience, fed entirely on the data of a civilisation that has already normalised intelligent drones dropping bombs on sleeping families. The race to build these systems is currently unrestrained because the costs are being socialised while the profits are being privatised.

Charge the full rent and the race slows. Suddenly, traditional forms of investment become relatively more attractive. The development of AI does not stop, but it becomes something that can be managed, guided and controlled, rather than something that controls us.

The digital age ought to be a glorious thing. It ought to reduce working hours without reducing wages. It ought to give people back their time. That is not a fantasy. It is entirely achievable. But only if the balance of public policy is correct. And at this moment, governments are doing precisely the opposite of what is needed.

The Government Is Making It Worse

What are governments actually doing? They are slashing property taxes on data centres. They are offering special low rates for access to water and electricity. There is a global race to the bottom to attract AI infrastructure by giving it away for free, at public expense. Trump’s Warp Speed project is the most visible example, but every major government is doing some version of it.

This is not stupidity. It is capture. The forces within government, across every major political party, are controlled by the people who extract economic rents. The landlords. The monopolists. The financial sector. The tech oligarchs. These are people who earn without working, who extract value from others rather than creating it. They are, to use the precise economic term, parasites. And they have comprehensive control of the political process.

That is why this analysis does not reach mainstream media. Not because it is wrong, but because it is right, and because the people who own the media are the same people who benefit from you not understanding it.

What Happens to Your House

If you are counting on your property as a pension, I am sorry to be the one to tell you this clearly. Those capital gains are going. Not eventually. Now. And under current policies there is no scenario in which they return.

House prices are going to decline progressively to a bottom we cannot yet identify. People who need to sell will be forced to slash prices. People with mortgages, particularly those relying on welfare or reduced wages, will find they cannot service their debt. The construction sector will contract severely. The rental market will struggle as tenants lose income. The whole system will deflate, because the underlying purchasing power of the population is being systematically destroyed.

A shift in public finance from taxing wages onto taxing rents would reduce the speculative capital gains that homeowners have been accumulating. But those gains are going to disappear regardless. The question is whether they are replaced by a functional society with well-funded public services and a universal income floor, or whether they simply vanish into a social catastrophe from which there is no recovery.

There Is a Way Out, But the Clock Is Running

I am not a doomster by nature. The solution Fred is describing is not theoretical. It has been authenticated by serious economic science. There are empirical examples, however limited, from around the world where resource rent collection has transformed public finances and social outcomes. This is not fantasy. It is not complexity. It is a problem of deep-seated political prejudice and captured institutions.

The public has to wake up. People need to understand how the economy actually works, who is extracting value from them, and why their wages have stagnated, their public services have deteriorated, and their children cannot afford homes, for decades, long before AI arrived to accelerate every one of these dynamics.

Either we build our way rationally out of this, shifting the tax base from wages to rents, reclaiming the common wealth generated by AI for the common good, slowing the uncontrolled race to superintelligence, and funding those displaced by the transition, or we pay a terrible price.

The house price crash is not coming. It is already underway. And it will not stop until we change the system that caused it.

Fred Harrison is an economic commentator and author whose work focuses on land value, economic rent, and the 18-year property cycle. He has been forecasting the structural dynamics of house prices and economic crises for over four decades. 

Join Fred for his book launch https://shepheardwalwyn.com/

https://schoolofphilosophy.org/products/book-launch-fred-harrison