No rational person wanting to splash the cash in the field of housing would do what the Government has done in the Budget. But there is a silver lining: no longer will we have to accept the line that ‘there is no money left’. There is plenty of money left, it’s just that Osborne chooses to use it in a wholly ideological way.
If Labour didn’t do enough to avert a housing crisis, we now have a Government that is actively making it worse and sowing the seeds of more problems in future. Jules Birch characterises it as ‘blowing bubbles’: looking to make people feel better by increasing house values. As Jules wrote: ‘It seems that any attempt at targeting new supply or first-time buyers has been abandoned in a desperate attempt to get the housing market moving before the next election.’ No lessons have been learned: the thing about bubbles, which we should know very well from experience over the last five years, is ‘just like our dreams they fade and die’.
If there is no money left, how can billions be found to support additional home purchases? The policy is indiscriminate: it is not targeted at first time buyers of new homes, but is also open to people who already have a home and want to upgrade (up to £600,000), open to people wanting to buy a second home, and open to buy to let landlords. You can guess which groups will move in on the scheme first, and it won’t be the trapped ‘generation rent’.
Tory MP Kwarsi Kwateng summed it up well, telling the BBC: ‘My worry with this is that having a system where you are giving mortgages without increasing the supply will lead to asset price inflation, because obviously if the amount of supply remains the same and you are making credit easier, the tendency would be for the prices to go up. I think we could have announced something bolder that actually increased the supply of homes.’
And the normally reliable BBC business editor Robert Peston said the new scheme came with risks as ‘growth sparked by a housing-linked consumer boom might not be altogether healthy’ for the economy, adding that the Chancellor’s strategy ‘may reflect a set of cultural and financial prejudices – houses deemed to be a better investment than proper wealth-creating entrepreneurs – that has been the UK’s curse.’
You have to worry about the Treasury and whether they have any economists there any more. It would be a good thing to provide targeted help with deposits to first time buyers looking to buy new homes, but only in the context of a broad policy that avoids general house price inflation. There is no new mechanism for ensuring that the additional mortgage finance will lead through into additional demand for new homes rather than additional money to buy homes that already exist. Every standard economics textbook will tell you that increasing general effective demand in the housing market when supply is inelastic leads to an increase in price.
It may be that the economists are overruled by the most ideological Chancellor in modern memory. Or it may be that an increase in prices is exactly what he wants, providing the appearance of growth, false confidence that things are getting better, and gaining the benefit of some ancillary increase in consumer spending in time for the Election. Osborne and Cameron are hard-wired to shout their mantra about increasing home ownership, driving blindly down a cul-de-sac ranting about aspiration. Because they know they will get positive headlines from the media – ‘good news, house prices have risen’ – when the opposite is the case.
By contrast Osborne offered nothing of significance for schemes that would actually get growth by building more homes, meeting housing need, and bringing down the benefit bill along the way. We will have to wait until June to see any announcement on the future of affordable housing. The Budget papers say that then ‘the Government will set out a social rental policy that gives social landlords certainty until 2025.’ Pull the other one.
There was no response to the calls from across the political spectrum to lift the cap on councils borrowing to build new homes. There will be yet more reliance on private renting but an ominous warning that the cash for whole programmes may be capped in future – the money will stay the same even if there are more cases. That means more cuts in basic entitlements, which in turn means more people unable to afford their homes.