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.
An excellent report and opinion poll from Shelter last year showed that, contrary to widely held assumptions, most people do not want house prices to rise any further, including homeowners.
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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2 Responses to “A reckless housing boom will not guide the Tories to victory in 2015”
Emma-Jayne
Osborne isn’t looking to the long term economic future of the country. He is looking to the short term political future of his party. Solely to get another five years he is willing to gamble on a short term bounce before the election, against all qualified, experienced, economic advice. I find it difficult to imagine he isn’t aware of the dangers and we must hope his arrogance doesn’t prove to be hubris before he (probably) doesn’t renew the scheme if he finds himself back in the chair after the election. A more charitable person might say his role as political strategist within the party is presenting a conflict of interest with the role of chancellor. However, I suspect you’d agree that this selfishness forms a pattern with many of their schemes. A willingness to throw a number of people under the bus, rather than letting them board it just so it doesn’t inconvenience the speed of his Jaguar travelling behind.
It indicates a recklessness with all our futures.
Laurence Sacco
WELL that is the Tories for you!!! Every time they get in they
mess with the housing market as the housing market creates jobs and economic
wealth for the government in stamp duty, profit for the developers and the
builders, estate agents, surveyors, legal teams the planning authorities
for planning approval costs which always go through with in my opinion
corrupt councils and planning inspectorates, profit for local councils through
council tax etc., the service providers ie: gas electricity telephone etc.
the furniture and household suppliers, removal firms, Bank and building
societies PROFIT PROFIT PROFIT why? so the government in power
can say the economy is picking up and draw in votes. Thatcher did it with the
sale of council housing to draw in votes and short term economy growth. The
housing market rapidly crashed along with the house holders. She then
saved the councils millions in savings for no cost of council house repairs.
Look at the massive mess she caused…..repossessions, bankruptcies, suicides,
the highest interest rates on record etc. etc.
Who is left to carry the burden after they have blew the housing
market bubble up and then it bursts with a crash. The home owners of course.
The estate agents and legal teams have more business when they come in
then and more business for them and tax for the government on
householders misery. You still want to vote the Tories. Many of us older
generation are nearing the end of our lives and have all been through it
with Thatcher. We do not want to see our children make the same drastic
mistakes.You have to yet go through it with Cameron so be warned.. They always
mess with the housing market under the pretence that are are trying to do their
best for the home owners, but the truth is it they are they are the best for.
If you want to get your own home be careful about buying one when the Tories
are in power the bubble may burst and leave you many thousands in debt with
negative equity. Why should they care they have their expenses to cover the
cost of a second home and who is paying for it? the taxpayer of course.