All policies have winners and losers. The inevitable consequence of policy-making is that some people in the country must lose out; it is the Government who must decide who this will be when they are passing laws. Which is why, on the surface, few scrutinised George Osborne’s help-to-buy scheme when it was introduced in the form of an Equity Loan in April of this year. The idea of giving people help to buy new build homes is one that has no immediate losers. But in the long run, we will all pay the price.
The housing market has crashed before, and it will crash again if house prices go back the days of increasing at an alarming rate. It is not a sustainable model and it is one that contributed heavily to the UK staying in recession for longer than most. The worrying thing is that Osborne is ignoring this recent history for short-term political gain. Booming house prices are frequently reported in the media as being ‘healthy’, whereas the reality is anything but. The reality is mortgages that will take a lifetime to pay off, placing a huge burden of debt on an entire generation.
I am not necessarily Grant Shapps’ greatest fan, but comments he made two and half years ago while he was Housing Minister have stuck with me. He argued that the best thing for the housing market for the foreseeable future would be for house prices to increase steadily, but below inflation. Therefore, over time, the housing market would return to rationality without millions being dragged into negative equity in the intervening period. Of course, a Government cannot legislate for this, but it should nevertheless remain as their target.
One way to make sure that this reasonable target is well and truly missed is by artificially inflating the housing market with a mortgage guarantee, which is due to come into effect in January. Vince Cable has been one of the few dissenting voices in the Cabinet to this dangerous policy, and others must listen very carefully to what he has to say.
Criticism is growing from leading economists, leading to the scheme being compared to a ‘drug’; even the IMF have weighed in to warn of its dangers, albeit in a slightly more measured way. My worry is that the damage is already done. Both the media and rational voices in Government must put pressure on Osborne to reverse this potentially disastrous policy, or else risk condemning the country to yet more financial strife in the years to come.
* David Gray is a musician, actor and writer based in Birmingham. He is a a co-director of Keep Streets Live
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10 Comments
“Which is why, on the surface, few scrutinised George Osborne’s help-to-buy scheme when it was introduced in the form of an Equity Loan in April of this year.”
I’m sorry but I can’t recall anyone thinking it was a good idea. It was widely condemned at the time.
“Vince Cable has been one of the few dissenting voices in the Cabinet to this dangerous policy,”
What is the point of being a dissenting voice? If he doesn’t agree with it then he should have resigned. This is your party’s doing and your inability to prevent this scheme completely removes any pretence of economic credibility given you are in a government that is more actively encouraging a housing bubble than the previous Labour administration.
Steve, you’re right to call the writer on his remarkable claim that “few” even questioned this scheme when it was announced; but you’re wrong to suggest that Cable somehow doesn’t achieve anything by dissenting but would achieve something if he resigned. If he could actually have stopped the policy that would, of course, have been far better. But the reality is that no minister in any government has a practical veto on areas outside their departmental competence. Sometimes a decision is so wrong in principle that a decent person cannot remain part of a group that condones it; but it’s hard to argue this is one of those decisions. He does perform a valuable service by continuing the argument. Even though he hasn’t managed to stop this awful policy being implemented, he obviously hopes to prevent it being extended or further policies being introduced that push in the same direction, and to develop an atmosphere in which it will be possible to bury the policy at a later point. That’s worth doing, and is probably more effectively conducted by staying in government than flouncing out.
OK, simply resigning now wouldn’t do much good perhaps, but there is a serious question here as to why those senior members of the Lib Dems in government haven’t vociferously condemned this scheme from day one. We’re now several months down the line and the scheme has been extended to existing housing stock. At least the scheme in its original form was only likely to inflate the price of new-builds, but that would in some small part have been mitigated by the additional stock being built.
This isn’t a minor issue – we have prices rising at the insane rate of 5% a year according to the Halifax (although the Land Registry is only showing an annual 0.8% increase at the moment and it’ll be interesting to see if the rises reported by the Halifax and Nationwide feed through to the LR figures that are more accurate but lag a couple of months behind) . 5% is around 5 times the rate of wage inflation. We have consumer credit rising at above 3%, which again is substantially higher than wage inflation. The Lib Dems made substantial political capital out of Vince Cable’s comments about the dangers of easy credit and the house price bubble ten years ago, yet Cable is now in a government that has gone much further in directly intervening to increase credit/house prices.
Yep, you’re right about all of that. I think Cable still thinks he can do some good from inside the government; and I’m pretty sure he couldn’t stop this particular nonsense by resigning. But on the substance of the issue, you’re not wrong. (And to be fair to David Gray, that’s his argument too.) It’s profoundly depressing.
Steve and Malcolm, I rarely heard anything positive about it, but my recollection is that it was often ignored and seen as something of a fringe issue. Whereas I believe it should be the subject of far more prominent debate. In fact, we are hearing much more about it now than when the policy was originally proposed, or even when it was introduced in April. My issue was with the low level of scrutiny it has been receiving.
I share your frustration, Steve, with the inaction we are currently seeing. Your point about the lack of vociferous criticism from other members of the cabinet is certainly valid. I don’t think Cable resigning would help, but the more attention he draws to the issue, the more likely it is that it will be thrust to the forefront of public debate and hopefully this will lead to Osborne ditching the policy.
Domestically, this is one of the single biggest problems facing us as a nation and it deserves to be recognised as such by the media and politicians alike.
I thought it was Osborne’s deliberate policy to create an arrangement whereby the rich [and particularly the very rich] would gradually own increasingly more homes and the people significantly less. The good thing about homes is that they are a necessity and while there are too few – if a monopoly can be established – rental charges can outstrip inflation.
I don’t think he will be deterred from his primary plan – it fits with everything else he has introduced.
Few scrutinized it? I beg to differ. I work in The City (which is part of the reason why I do not use my full name here) and I commented on this site on the day that Osborne announced this nonsense that its only possible motivation was to precipitate a housing bubble that would peak in time for the general election, giving a “feel good” factor to the Conservative’s natural constituency.
Osborne is guilty of deliberately engineering a “boom and bust” scenario for narrow political advantage, and the Liberal Democrats are only now starting to make some bleating noises about it. Pathetic.
What makes me laugh is the thought that Osborne got the timing wrong: the bubble is happening too soon and if not reigned in it might well go pop too early. My prediction? Expect an “unexpected” base rate increase before the end of the year in an effort to cool the borrowing market.
Vince Cable is right to question the wisdom of Help-to-Buy ? Yes.
It is a scheme which could only have been designed by a politician. If politicians designed cars they would have a clutch but no accelerator. Full power or nothing.
We need transactions but not increases in prices. Based on postcode areas, as house prices increase the subsidy from Help-to-Buy should automatically be cut. 5% increase in prices, subsidy halved. 10% increase in prices subsidy cancelled. It is called feed back.
It gets worse:
http://www.theguardian.com/business/2013/sep/13/first-time-home-buyers-mortgage-bubble
The days of reckless lending forcing up house prices are back. We have the current government to thank for this. They have systematically denied the role of the banks in creating the conditions that caused the crash and recession in their quest to blame it all on Brown’s public spending. The difference with the next crash is that the taxpayer will have no choice about making good the losses. So, it appears perfectly acceptable for the taxpayer to bolster the unearned profits of the private sector, but spending on public services is a bad thing. The size of the state will have to be reduced even further after the next crash because of the losses. The ultimate neo-liberal triumph.
So, Nick Clegg thinks(sic) we’re nowhere near a bubble in house prices on the basis that…..Nick Clegg says we’re not:
http://www.bbc.co.uk/news/uk-politics-24099255