The notion that the main aim of the Budget is to create a mini-house price boom before the Election seems to be gaining credence.
Yesterday Red Brick argued that that the Government’s additional support for mortgages and deposits, especially the ‘help to buy’ scheme, was engineered to promote such a boom. Amid their endless and cynical rhetoric about helping people onto the housing ladder, their real aim is to get a ‘feel-good’ boost that comes with a rise in house prices.
However Planning Minister Nick Boles seems to have given the game away in an apparently private meeting with big property developers at a reception in Mayfair, which has been reported in the Telegraph. At almost the same time as the Government was busy refuting Ed Balls’ claim that the scheme will be used by the rich and people wanting to buy second homes and buy-to-lets, Boles couldn’t be clearer when he said he ‘couldn’t care who owns the bloody things’.
According to the Telegraph, Boles ‘indicates that the main purpose of a £15.5 billion government package to support homebuyers is to create a building boom.’ The next steps, he said, would be further deregulation of the planning system.
In a linked article, the Telegraph reports on one immediate response to the Budget: ‘Affluent house hunters have been contacting estate agents in some of Britain’s most expensive postcodes to ask how they can benefit from the new state mortgage assistance scheme unveiled in this week’s Budget…… there is nothing to stop high earners from using the multi-billion pound scheme and early anecdotal evidence suggests that it is likely to benefit large numbers of relatively wealthy people.’
They quote one up-market estate agent as saying: ‘Given the limit at £600,000 and lack of salary cap surely this is going to appeal to those wanting really quite nice property – for example three-bedroom flats and houses in Battersea and Wandsworth [in South-West London]. If I was being cynical I’d call those Tory voters.’
There is of course a difference between a hike in house prices and a building boom. Liberalising and subsidising mortgages and deposits without a corresponding increase in supply is likely to feed through into price rises. The Government clearly hopes that a further liberalisation of the planning system and the prospect of bigger profits will bring about the supply response they are desperate to see.
But from the flavour of the right wing press over the past couple of days, the new policy will intensify the struggle between the property developer wing of the Tory Party, backed by Boles, and the nimby/defend the countryside wing. Both wings are capable of being equally unpleasant, and they deserve each other.
The best commentary on the new policies that I have seen came from Faisal Islam, Channel 4 News’ economics editor. It is worth reading his whole blog post – it is very balanced, being critical of Labour’s approach as well as Osborne’s.
Islam makes a number of inportant points:
- Britain is devaluing and inflating housing at the same time. Overpriced housing is not growth.
- Buyers dependent on low interest rates will be taking on a ‘mortgage of the living dead’ if interest rates go up. This is the Freddie Mac/Fannie May ‘sub-prime’ error being repeated here.
- Putting money into mortgages when there is a long list of business demands and unfunded infrastructure projects ‘beggars belief’. ‘If our sovereign balance sheet is to be lent to the private sector, it should be to industry, entrepreneurs, and infrastructure.’
- ‘To critique the notion of a “magic money tree”, and then immediately
create a magic money forest of mortgage guarantees that don’t count as public
spending, is baffling.’