The government’s latest intervention in the housing market is a yet another symptom of a distracted administration failing to grasp the right solutions, says ANGELA JAMESON.
Our housing market is broken, even the Government admitted as much earlier this year. So why then, is Theresa May pumping more tax payers’ money into the Help to Buy scheme which was originally set up in 2013 to help first time buyers to get on the housing ladder? On hearing confirmation this week that the Conservatives planned to extend Help to Buy until 2021, with £10bn more money, shares in house builders including Barratt and Persimmon rose by between 2 and 4%. Help to Buy is an equity loan scheme that has been used by more than 285,000 people. The Government lends up to 20% of the purchase price (and up to 40% in London) to reduce the size of the deposit needed by the first-time buyer. According to analysts at Liberum, a stockbroker, 38% of private completions now use the scheme, and when there was talk of axing the scheme, house builders’ shares lost more than 5% in value. Yet Help to Buy appears only to help the house builders, companies where profit margins of 20% are routine and executive pay runs into the millions. This is no panacea to Generation Rent, the nickname for those who find themselves forced to be tenants because they can’t afford to buy. The economists at the Adam Smith Institute likened extending the life of Help to Buy to throwing petrol on a bonfire and called it an ‘astonishingly ill-judged move that may prove economically and politically disastrous’ for the Government. By allowing people to buy homes they could not afford to save the deposit for, the Government is merely help to push already unaffordable house prices higher. The Conservatives are increasing demand for homes, without taking any steps to increase their supply – in a country where property prices are the second highest in the world, behind only Monaco. Last week, we saw London prices fall for the first time in a year. Should that trend continue, more and more people using this Government subsidy could find that their home is worth less than it was when they paid for it. The root cause of the housing market problems in this country is a fundamental shortage of supply – not enough houses are being built because of restrictions on planning. Until that problem is addressed, Government schemes like Help to Buy, are merely tinkering with the market – and like many knee-jerk Government ‘solutions’ to the housing market – are merely making matters worse. Help to Buy has simply driven up the prices of existing stock Meanwhile, hiking stamp duty on homes worth more than a £1m or doubling stamp duty on the purchase of Buy to Lets and second homes has led to paralysis in parts of the central London property market. Many homeowners refuse to move up or down the ladder, because they baulk at paying hundreds of thousands of pounds to HMRC simply to buy a slightly nicer, bigger (or smaller) house. May’s latest bribe to try to lure younger voters back from Labour looks particularly facile, if prices are likely to trend down over the next few years as European nationals decide it is time to depart these shores and try their luck elsewhere. Business groups are saying that their members are growing impatient with the Conservatives’ Brexit infighting. They were especially critical of Philip Hammond’s conference speech to the Conservative faithful, which they decried as strong on diagnosis and weak on action. The Institute of Directors, the British Chambers of Commerce and the CBI were not impressed with the defence of capitalism they heard from the Chancellor. Frustrations are spilling over and even the usually politic CBI did not mince its words. ‘It’s time for honesty about the challenges we face. Our economy is under threat – it has moved from the top of the G7 to the bottom. Faltering consumer and business confidence risks lowering living standards. Rising inflation is putting pressure on households.’ It’s all well and good for Conservative ministers to attack Labour’s empty promises, but at least provide a credible alternative.