The Help to Buy scheme reinforces the economy’s unsustainable dependence on private debt and spiralling house prices.
The Coalition sees itself as an anchor of long-term economic stability, holding firm against the dangerous short-term political pressures that would push the country towards recklessness, profligacy and crisis.
Unpopular decisions are presented as politically tough but economically necessary.
Yet precisely the opposite principles underpin housing policies such as Help to Buy. Maintaining artificially high house prices may seem politically popular among core Tory voters in the short-term, but it is economically reckless in the long-run.
While the government insists that we must frugally ‘live within our means’ and reduce government debt whatever the social cost, profligate housing policies reinforce the economy’s unsustainable dependence on private debt and spiralling house prices.This is particularly remarkable following the 2007-08 financial crash, which revealed how vulnerable modern economies are to the collapse of unsustainable housing booms.
In an economy still recovering from that crisis, the government introduced a massive, price-inflating subsidy into the housing market through the ‘Help to Buy’ scheme.
Interest-free equity loans worth up to 20% of a property’s value are offered to movers and first time buyers on new builds worth up to £600,000. This makes houses more affordable for those on the scheme, but simply inflates house prices even further for everyone else.
Tories like to dismiss any hint of market regulation as full-blooded ‘marxism’, but are now clumsily interfering in one of the most important sectors of the economy.
There are an unusually wide range of critics of Help to Buy, from the Adam Smith Institute and the Spectator to Vince Cable and Shelter. Outgoing Bank of England governor Sir Mervyn King, for example, believes that Help to Buy is ‘too close for comfort’ to damaging mortgage guarantee schemes in the US.
Opposition to ‘Help to Buy’ is so broad because the scheme intervenes in the wrong side of the housing market, making an already broken market even more dysfunctional. Radical action is needed to solve a chronic undersupply of housing, rather than artificially boosting demand and raising prices further.
The uncompetitive housing market has completely failed to provide the homes needed to keep up with demand at a reasonable price, despite a backlog of 400,000 sites with planning permission and, especially in Northern cities facing a very different housing crisis, thousands of empty properties.
‘Help to Buy’ reflects an ingrained flaw in the British housing system: rising house prices are seen as essential for the health of the wider economy, even though they lead to unaffordable rents and price a whole generation out of home ownership.
The 2007-08 crash showed that many mortgage-holders simply cannot keep afloat amid falling house prices and negative equity. The significant fall in house prices needed to make home ownership possible for workers on an average salary again would send shockwaves through the rest of the economy if implemented rapidly.
Despite this tension, neither tenants nor mortgage-holders benefit from a housing boom in the long-term.
Everyone sees their taxes used to prop up a failed housing system through policies such as Help to Buy and landlord-subsidising Housing Benefit. Home-owners and renters alike are not simply atomised and self-interested, but see their children and grandchildren in full-time work with no hope of ever owning their own home.
And crucially, mortgage-holders are the first to face the consequences when a housing bubble bursts.
Voters will see right through a political strategy based on the supposed ‘feel good’ effect of rising housing prices; nobody benefits from a reckless housing boom that plants the seeds of the next crisis.
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