In his Budget of 3 months ago, George Osborne surprised the country with a plan to make home ownership a realistic possibility. A realistic possibilty for millions of twenty and thirty-somethings who have been unable to scrape together the massive deposits that mortgage lenders now demand from those hoping to ascend into the universe of home ownership. Through a combination of the provision of public loans to reduce the cash deposit buyers need, and £130 billion of Treasury guarantees to make lenders more flexible, Osborne hopes to create vast number of new owner occupiers.
Now, setting aside the Chancellor’s attempt to allow second home buyers to benefit from the scheme, there are three things which surprise me about the policy. Firstly, I’m amazed that a minister from this Cabinet is able to comprehend a situation in which a 25 year old can’t get a £50,000 handout from their parents to buy a house. After all, the rest of this Government’s housing policy suggests they think this! Secondly, this is such a vast state intervention in this sector of the economy that, had Labour attempted it, the Coalition parties would have condemned it as 70s style corporatist economic mismanagement. Thirdly, why Help to Buy hasn’t been attacked as a recipe for the mother of all housing bubbles is a total mystery. Only a few economists and politicians seem to see it for what it is: a means of artificially inflating the amount of unaffordable debt people can take on, pushing prices up, forcing more state support… And that is because the policy inflates demand but but not supply.
To those who say that the market will always work to meet demand, I would ask why construction has been at absurdly low levels since the effective demise of council homebuilding thirty years ago. I would ask why the average house price is almost three times the cost of construction. I would ask why we need the nationalisation of 15% slices of homes under Help to Buy if the market has worked so well on its own. These are all questions to which I haven’t heard convincing answers. Clearly the market hasn’t worked, but government activity will fail too unless it is planned properly. What we have here is a crystal clear example of a policy designed to win votes rather than to, well, work. And yes, this policy is definitely going to create terrible new problems.
10 out of 10 for effort, Mr Osborne. Unfortunately, you’ll still have to take your plans back to the drawing board. You just don’t know it yet.