Red Brick’s immediate verdict on the so-called ‘Help to Buy’ policy when it was introduced in the March 2013 Budget by George Osborne was that ‘no rational person wanting to splash the cash in the field of housing would do what the Government has done’. We asked ‘If there is no money left, how can billions be found to support (help to buy)?’
The central criticism was that the scheme as proposed would be much more likely to lead to house price inflation than to increase supply, but that this was exactly what the Chancellor wanted to achieve. Rather than learn the real lesson of his economic policy – that austerity damages growth and is largely self-defeating – he would rather look to cover his tracks by engineering a feel-good increase in house prices, and possibly a mini-increase in consumer spending.
Since then, ‘Help to Buy’ has attracted growing critical attention, from the Governor of the Bank of England to the International Monetary Fund and from the Guardian to normally reliably-Tory Spectator magazine (‘George Osborne’s property bubble will lead to disaster’).
Let’s look at what the IMF actuually said:
The 2013 Budget announced a new scheme, Help To Buy, aimed at boosting activity in the housing market. This measure may temporarily help boost confidence in the housing market, but there is a risk that, in the absence of an adequate supply response, the result would ultimately be mostly house price increases that would work against the aim of boosting access to housing. To mitigate this risk and engineer a supply response, the government should consider fiscal disincentives for holding land without development.’
It is action on the supply side that is most urgently needed to get Britain building again. There are many possibilities. Even Boris Johnson has recently been railing against ‘pernicious land banking’ as developers sit on land as its value goes up. ‘To constrict supply to push up prices by land-banking is plainly against the economic interests of this city’ he said.
Developers are, of course, relatively rational people who like to reduce risk and maximise their profits. But their activities tend to be governed by the confidence with which they view the future. In the current marketplace, they see significant demand from foreign investors at the luxury end and they see rising demand from landlords with a buy-to-let mortgage in their pocket, but they do not see much demand from first-time buyers, and they don’t see any change on the horizon.
The fact that developers aren’t building is just another verdict on Osborne’s failed economic policy.