Yesterday was probably a good day to bury bad news. It was also very probably an opportune moment to promote a bad policy in the hope that it would slip under the radar of those with critical voices.
Yesterday was probably a good day to bury bad news. It was also very probably an opportune moment to promote a bad policy in the hope that it would slip under the radar of potential critical voices.
Perhaps it should not have been a surprise, then, that chancellor George Osborne chose yesterday to reveal more details of his Help to Buy scheme, which will essentially underwrite £130 billion of mortgage lending with state money.
The scheme was first announced in April, and yesterday Osborne promised stricter testing of those who can afford mortgages and a ban on second home purchases through the scheme.
That more flesh was put on the bones of the Help to Buy scheme at a time when much of the media was distracted, however, has not stopped the criticism pouring in, with the chief economist at the Institute of Directors (IoD) calling the scheme “dangerous”:
“The housing market needs help to supply, not help to buy and the extension of this scheme is very dangerous,” said Graeme Leach, chief economist at the IoD.
“Government guarantees will not increase the supply of homes, but they will drive up prices at a time when it seems likely that house prices are already over-valued.
“When the scheme is withdrawn any rise in prices that has taken place will be undermined, with potentially disastrous results.
“There is a real risk that the housing market will become dependent on the underwriting by government, making it very difficult politically to shut the scheme down. This should be of great concern.
“The world must have gone mad for us to now be discussing endless taxpayer guarantees for mortgages.
”Instead of trying to pump-up prices, the government should focus on relaxing planning laws and reducing Local Authority charges on developers to make it easier to build more homes.”
This follows hot on the back of criticism of the scheme when it was proposed by the treasury earlier this year, with former United States secretary of the treasury Larry Summers saying the scheme went “against basic things taught in economics textbooks”.
And in June Albert Edwards of French bank Societe Generale called the policy “truly moronic”
“I believe it truly is a moronic policy that stands head and shoulders above most of the stupid economic policies I have seen implemented during my 30 years in this business,” he said.
Presumably, having refused to stimulate the economy with significant investment, Osborne is hoping for an economic recovery on the back of another housing boom.
As everyone apart from Osborne seems to realise, however, the last house price boom didn’t end particularly well.
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