The last thing we need is a housing bubble, this will only make London’s housing crisis worse not better.
Tom Copley AM is the London Assembly Labour group’s housing spokesperson
The chancellor George Osborne announced on Friday that the Bank of England’s Financial Policy Committee (FPC) will make annual reviews of the Help to Buy scheme from September 2014.
This action would clearly be too little too late.
Let’s start by stating the painstaking obvious. In London, more people want to buy a home than there are homes to buy. That is why house prices in London rose by 8.1 per cent in the year to June 2013 and why the average home in London now costs twice that in the rest of the UK.
The second phase of Help to Buy – being introduced in January – will make this worse, by increasing demand through a deposit guarantee scheme without seeking to increase the number of homes being built. This will increase the total number of potential house buyers without actually increasing the supply of housing. As basic supply and demand theory highlights, this can only push house prices even higher.
Despite this, Boris Johnson has strongly supported the scheme, praising the “many Londoners” it will help to get on the property ladder. This is nonsense.
Mark Carney – the new governor of the Bank of England – has wasted no time in raising concerns over Help to Buy, saying that:
“We (the Bank of England) are watching it closely and we will as appropriate make our views known in terms of the degree of this risk and the potential action that should be taken to address it.
“I lived in the country in the late ’80s, 1990s, I saw the boom-bust cycle in the housing sector, the damage it can do, the length of time it took to repair. I’m very alert personally to this issue.”
This followed similar criticisms from the previous governor. Even the Adam Smith institute has strongly criticised the chancellor for a policy that “will only drive prices up, risking a bubble, improving access for a few but making housing more unaffordable for most people”.
This backlash is presumably why George Osborne said on Friday that the FPC will now make annual reviews of the Help to Buy scheme from next September – monitoring against the housing bubble the chancellor previously denied the policy could create.
But this reaction is clearly insufficient; leaving a whole nine months of uncertainty of the damage to London’s housing market before the committee reports.
The Bank of England should have a proper role in assessing this and should be given the teeth to avert a crisis in house prices. It should be allowed to review the second stage of Help to Buy before it is launched in January, ensuring that there is confidence the policy will not spark another housing bubble akin to that which precipitated the international financial crash in 2007.
If they are not confident that the policy will not spark rapid price inflation, then the second phase should be abandoned. The last thing we need is a housing bubble, this will only make London’s housing crisis worse not better.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.