I missed it yesterday, but have just caught up with Lib Dem chief secretary to the treasury Danny Alexander’s (rather flailing) attempts on BBC Radio 4’s Today Programme to justify the second stage of the Coalition’s ‘Help to Buy’ scheme for folk wanting to buy their own house. You can listen to it here or below.
There are two stages to ‘Help to Buy’. The first, announced by George Osborne earlier this year, offered anyone purchasing a newly built home costing less than £600,000 the opportunity to apply for a 20% government-guaranteed loan with just a 5% deposit. The Economist explains the rationale:
The basic economic thrust makes sense. Rental rates are high in Britain, meaning punishing payments to landlords. Given that a mortgage can be cheaper, wider home ownership could put more disposable cash in Britons’ wallets. In an economy where private consumption accounts for four-fifths of spending cutting housing costs in this way is likely to boost GDP. And since this part of Help to Buy is tied to building, it should work even if the new nests end up in the hands of buy-to-let landlords: a bigger housing stock should drive down rents, and provide jobs for the workers that build them.
The big problem comes with the second stage of ‘Help to Buy’, which breaks the explicit link with new-build housing. From this month, pre-owned property also qualifies. If widely taken up, it will stoke demand among eligible buyers but do nothing to increase supply: a recipe for house price inflation in many areas, especially London and the south-east. That will be good for the equity of home-owners like me, but rubbish for those not yet on the housing ladder who find themselves once again priced out of the market. Here’s The Economist again:
The prospect is unnerving, especially since the new part of the scheme may well distort banks’ incentives by driving a wedge between what they lend and the risks they face. With the housing market already rampant in London—up 20% annually in the trendiest parts of the city—and pepping up in the rest of the country too, Help to Buy is adding heat to a market that does not need it.
The Coalition appears to be banking on the winners from the scheme being happier and more numerous than the losers. Depressingly, there’s a chance they’re right. After all, Margaret Thatcher’s ‘Right to Buy’ did serious damage to the country’s social housing stock, but was (unsurprisingly) highly popular with those it helped. That said, the latest polling on ‘Help to Buy from YouGov suggests the public, post-credit crunch, is more alert to the dangers of house price inflation than it was: by 58% to 17%, voters reckon the new scheme risks creating a housing bubble.
Danny thinks it’s all worth the risk: “Our housing market has to be opened to a wider range of people,” he says. Don’t we all? The way to do that, though, is by increasing housing supply, not by the kind of blatant market-manipulation the Coalition (rightly) slams Ed Miliband for when he makes similarly ill-thought through promises to fix energy prices.
* Stephen was Editor (and Co-Editor) of Liberal Democrat Voice from 2007 to 2015, and writes at The Collected Stephen Tall.
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35 Comments
In Inner London a staggering 85% of new properties are now bought by foreign investors, and I believe 25% by investors from China alone. London housing is becoming a financial plaything for wealthy investors across the world and less and less about homes (certainly not owned homes) for people who live and work here.
With so many new flats and houses being bought for investment, often not even occupied, it should be very clear that increasing house building (although sensible) will on its own do little to make property more affordable, particularly for the (even well off) young. Urgent action is needed to recognise the wider factors channelling all this investment money into London housing, to rebalance the tax system away from income, and to tackle this undesirable flow of speculative investment.
And the obvious, Liberal answer to this problem that we are not mentioning to anyone… Land Value Tax. Why are we so quiet on such an obvious solution to a problem that we can see, and have known about for decades?
The answer is: apparently they do, because the party Conference rejected the amendment which backed an alternative approach. Perhaps those who spoke against the amendment – including one of the LDV editorial team – could explain their support for Help to Buy?
We (the party) are mentioning LVT. We overwhelmingly passed policy in favour at conference. Scarcely an echo has come from our leadership.
The great thing about help top buy is that you can have as many spare bedrooms as you want :-O
Clearly the majority of Lib Dem MPs have signed up to the nonsense of help to buy despite it being an issue where even many Tories see that it is a dreadfull policy in so many ways.
Lets be clear – the reason rents are so high is because the landlord charge a rate that covers the cost of their mortgage and administration. The Landlord gets the equity increase from rising hosue prices while the tennant pays so much rent they can’t afford to save for a deposit. Even the Labour scheme of a halt to stamp duty was of more genuine help to house buyers.
Stephen Tall
The Coalition appears to be banking on the winners from the scheme being happier and more numerous than the losers.
I am rather tired of the words “The Coalition” being used in situations where before 2010 the words “The Government” would have been used, and, as in this case, to refer to government policies which are very much coming from the Conservative side and which most Liberal Democrats are very unhappy about. It’s something those opposed to us like to do. So why on earth, Stephen, are you now doing it as well?
“The Coalition” is a political phrase, meant to draw attention to the political composition of the government. It is not a neutral term, and should not therefore be used in any circumstances where there is not a deliberate intention to draw attention to the political composition of the government. I suspect that the usage of “The Coalition” for “The Government” is done deliberately in many cases in order to attack the Liberal Democrats. Thanks to the way Nick Clegg has presented it, I suspect most people when they see the phrase “The Coalition” think of him and the Liberal Democrats first – they think of the coalition existing because of the Liberal Democrats, and the Liberal Democrats being the only real supporters of “The Coalition”, because the Conservatives and their supporters have made no secret of their preference for ending it and governing alone as soon as they can win a majority.
So when I read in the press about “The Coalition” having some policy, I know in most cases there is a deliberate attempt to push the subliminal message “That’s what the Liberal Democrats have given us”. That’s why Labour supporters are keen on using that phrase when it’s about some horrendous right-wing Tory policy our MPs probably have worked hard to try and soften, and Conservative supporters are keen on using it when it’s about some liberal policy we have managed to get through in the face of opposition from the Tory right wing.
Maybe he is thinking of the votes that this will “help to buy” after all it worked for Thatcher…..
It’s a shocking policy that will lead to house price inflation. Sadly for those of us that own our own home, prices still need to be held steady to allow wages (which are themselves woefully below inflation) to catch up. I look at my kids and wonder how they will ever be in a position to buy their own property.
As a country we have too much individual debt, helping people to get more is surely not the solution, even if the housing market continues to stagnate somewhat…..
Before anyone comments on the scheme, they should state their position. Are you a homeowner or buy to let landlord?
Its disgraceful the way younger adults have been forced into hugely overinflated, unstable rentals, while being denied the opportunity to buy their own in the same way previous generations were able to.
The increase in unstable, shabby rentals and “mini-despot” landlords is a disaster for the country, a disaster for communities and a disaster for democracy.
Lennon
Why are we so quiet on such an obvious solution to a problem that we can see, and have known about for decades?
The granny in the big house. I’m very much a supporter of LVT, but we should not under-estimate the difficulty of selling it, when those who would be adversely affected by it are the sort who are vocal, who vote, and who most media commentators mix with, while those beneficially affected are mostly the sort who have been persuaded that politics “is not for the likes of us” and instead of supporting us would probably get no more than seeing the headline “evil politicians forcing grannies out of their houses” and so thinking we were bad people for proposing it.
The phrase “granny tax” was invented to make us weep at the unfairness to grannies of a minor fix to taxation which actually shifted financial support from those elderly people with enough income to be taxed on it to higher universal state pensions so more equitably supporting all elderly people. Given the fuss made about that, how very much more fuss is going to be made about a tax which on the face of it WOULD be making people on low incomes living for historical reasons in large houses pay out money they don’t have. I realise very much that in fact payment by equity share is the sensible solution to that, but don’t underestimate the extent to which the wealthy can cook up sob stories about the inequities of any sort of tax on inheritance – and even fool many others into accepting that inheritance tax is an unfair “double taxation”.
Surely every Lib Dem minister in government supports this policy? Collective responsibility and all that. Also, the Lib Dem party must, de facto, support it, even as a price worth paying for staying government. Otherwise it would insist that Lib Dem ministers show their opposition by pulling out of Coalition.
You can’t wash your hands of the consequences of this given that it is wholly within your power, as a political party, to stop it.
Not me. I think it’s a vote loser, one you factor in opportunity cost.
In the car-crash interview linked above, Mr. Alexander says “I’m not in the interest rate forecasting business”. Well why isn’t he? If the government is prepared to speculate on the future value of housing by implementing a scheme that leaves the taxpayer on the hook should significant numbers of borrowers default, then surely due diligence demands that the treasury should have modelled default rates for various interest rates, including the historical average rates on mortgage borrowing.
The only answer I can come up with is that they have done the models, but Mr. Alexander is not prepared to discuss them. It is a pretty poor show when Liberal Democrats in government are colluding with the Tories to create a debt-driven bubble in the lead-up to an election.
@Matthew Huntbach – I understand where you are coming from – but it is precisely that attitude from the media and politicians over the years that have got us into the situation we are in, having built up so much debt that we have squandered our children’s future taxes on jam today – just because any policy can always find a victim. I would have thought that of all periods in recent history now was the time when a new alternative was possible – when the previous way of working has been discredited.
The problem as I see it, and that you are suggesting comes about because people are trying to take small steps there… a mansion tax here, council tax revaluations there. That misses so much of the point of LVT – the ability to slash or remove Income Tax, Council Tax, etc., the ability to hypothecate future taxes to infrastructure investment – that people will only see the negatives as the positives are missing.
The only real solution is to be radical – to put LVT front and centre in terms of economic policy – to say this is a totally new way of doing things, to highlight all the consequential positive changes that can come about – to be radical and not start from where we currently are – up sh*t creek without a paddle. And surely, if we as Liberals, can’t be radical then who can – or is it forever doomed to be the best economic approach never implemented?
@Paul in Twickenham
“Mr. Alexander says “I’m not in the interest rate forecasting business”. Well why isn’t he?”
I would have thought it was fairly obvious why he isn’t. People need to take there own decisions on such matters.
Having said that I think this is a fairly idiotic scheme.
As someone who doesn’t own I am annoyed that for years the Market was left alone as house prices rose and rose and rose – always reported in glowing terms by the media – but as soon as the Market wanted to cut prices, the Government jumped in and threw money around to stop it from happening. House prices should have been allowed to crash four/five years ago.
Added to that, and whatever the rhetoric I hear from my own party and others, no-one seems to want to do anything about building more homes.
The only silver lining is that with every year that passes more and more voters are left cut off from the housing market; meaning more and more votes for those politicians with the guts to do something about this problem.
Stuart, the problem with letting house prices collapse is that it would send a lot of people into negative equity which would have terrible outcomes. I assume someone in government worked out that this outcome would be worse than preventing a collapse by propping up prices to some extent.
A sensible thing to do would be to prevent house prices rising over a long period to bring down their relative cost, not boost them with more cheap credit. That way you avoid negative equity and avoid another bubble…
Industry generally provides products when someone can make a profit from doing so. So if the house-building industry can’t make profits at current house prices, it’s not going to be able to do it if house prices fall. Ergo, what is needed is for prices to rise to a level at which builders will be able to make an adequate profit. If this initiative helpts to achieve that, then isn’t it a Good Thing?
@Richard Dean
“Ergo, what is needed is for prices to rise to a level at which builders will be able to make an adequate profit”
Alternatively build more social housing….
DON’T DO THIS AGAIN.
Videos are fine – but NOT when set to start automatically when you go to the page they’re on.
When I open a set of web pages including LD Voice, I *don’t* expect one of them to start talking to me – and disturbing anyone else in hearing range, who may be on the phone or concentrating on something else. It was especially annoying here as the video in question was well down the page and it took me some time to find which item on which page was lecturing me on how good the Government’s dumb policy was.
P.S. I agree with Matthew, (as I usually do!).
@David Wright
Seconded. It’s very annoying.
The problem with housing is that there are lots of housing markets in different areas. Help to Buy is not a sensible way to tackle the housing problem, in my view, but it won’t necessarily have the same effect everywhere.
In particular London is different from everywhere else.
Where I live in Lancashire HtB may not have an effect on a lot of house prices in the short run. There is at present a lot of slack in the market – houses have not just gone down in price in the past few years, they are often taking quite a time to move. If HtB has any significant effect (which is to be seen) it might in the short run just speed up the market (and bring on to the market houses that people are not bothering to try to sell at present). It is when this slack is taken up that prices might then start to rise.
Of course sellers may be incited by estate agents to try to set higher prices from the start of HtB, but all that will do is make sure those properties don’t sell quickly – or get bargained down to the true market price.
Tony
What a cheeky article. Man up – this is what you have signed up to by supporting Nick Clegg’s motion at Conference.
While we’re quoting The Economist: http://www.economist.com/news/leaders/21580466-why-being-159th-best-investment-no-way-country-sustain-recovery-lets-try
@Simon – the point is that if mortgage rates revert to long-term averages then many people will struggle with repayments. Now let us assume that interest rates have reverted, buyers cannot afford their repayments and house prices have entered “correction” territory without hitting a bear market – i.e. down somewhere between 10% and 20%. Then with only a 5% deposit from the buyer and a 15% deposit from the government then someone is sitting on a loss – either the government (i.e. you and me) or the banks. Now ask yourself this question: if push comes to shove and it’s either a case of the taxpayer carrying the can or the banks doing so, who do you think will be forking out? So do interest rates matter?
I enjoyed PMQ’s today: Milliband = marxism in the energy market. Cameron = marxism in the housing market.
While I am sceptical about this policy and sympathise with much of Evan Davies questioning, Danny Alexander does have one killer point, which is the cost of renting. When renting costs far outstrip mortgage repayments, the onus is on defending why those who rent cannot have a mortgage. An obvious repost is the possibility that mortgage repayment costs will (or may?) sharply increase, however what may happen is a murky area.
Im sorry but all the fuss about this scheme seem to be ignoring its central premise – its a temporary measure launched during our recovery from a deep Recession.Theres a housing bubble in London & its fringes, not in the country as a whole . when the Recovery is more solid & The Housing Market in The North has recovered then The Help can be phased out. We dont need to argue about that for another year surely ?
I find myself horrified at the help to buy system, when on the other hand we are forcing people to move or pay “the spare room subsidy”.
Pay x amount or move and to others… oh we will act as the guarantee to a max of £90,000 to allow some to only put down 5%… do you see anything wrong with this?
In one hand we give, with the other we stamp on the poorest…
It’s just not right
So it’s all down to Danny and Nick really. No change there then. Gone native is far too mild an expression for what they are doing.
Please stop Danny Alexander’s voice coming up each time we access the home page of LDV.
Paul Pettinger has linked to an Economist article that notes “Britain’s recovery so far has been hollow…. Despite a much cheaper currency, exports continue to disappoint; the trade gap, at 2.2% of GDP, has hardly fallen over the past five years. Consumption props up growth figures—not a problem in itself, but worrying given that real wages, still 9% below their peak at the end of 2007, continue to fall. Debt-to-income ratios, which had been falling, are rising again. The country is borrowing its way to growth.”
Much more alarmist is the Moneyweek assessment End of Britain that there is no way out of the enormous debt overhang that Britain will continue to face for generations to come.
g has commented “A sensible thing to do would be to prevent house prices rising over a long period to bring down their relative cost, not boost them with more cheap credit. That way you avoid negative equity and avoid another bubble.” Most prudent people would agree.
Rising rents at an unacceptably high % of household income are a major contributing factor to growing inequality. To exacerbate this situation further by maintaining an artificially low interest rate that transfers income to borrowers at the expense of savers and retirees is not a viable long term policy.
Help to buy is a temporary pre-election boost to the housing market that relies on increasing the level of borrowings and will be phased out after the next election. Solving the housing crisis in this country requires a coordinated and determined focus on increasing the stock of housiing available for sale or rent to the average wage earner at an historically affordable price. Support to the mortgsge market is only one facet, equally important are LVT and the financing of social and affordable housing construction i.e, a joined-up strategy (that learns the lessons of the past) to meet the housing needs of the general population.
Lennon
@Matthew Huntbach – I understand where you are coming from – but it is precisely that attitude from the media and politicians over the years that have got us into the situation we are in, having built up so much debt that we have squandered our children’s future taxes on jam today – just because any policy can always find a victim.
Yes, I agree. I have been a strong supporter of LVT for years. In fact I spoke at Liberal Party Assembly back in 1986, reminding the party of its traditional support for this policy, and calling on it to reaffirm that policy rather than adopt weaker and more dubious policies to distribute housing more widely. However, when you wrote “Why are we so quiet on such an obvious solution to a problem that we can see, and have known about for decades?”, I gave you the answer. Having spoken up on this at around the time I was first standing for local elections, I had people writing to the local press accusing me of having “Moscow’s housing policy”, people phoning me and saying “I used to vote Liberal, but after hearing what you said, never again”, and my Conservative opponent distributing leaflets saying that I was “the real extremist”.
This isn’t about economics, this is about electoral math. Around 70% of the UK are owner-occupiers. The Tories (and Lib Dems?) are going to bribe them with a property bubble. And then there are those seeking to get on the housing ladder. This is about the next election and not about hard economics.
Help to buy is a sensible policy – but I think the 20% guarantee is to high. Should be 5 or 10. That would be valuable support to correct the problem in the lending market that leaves people who can afford a mortgage stranded without a deposit. 20% seems a high level of support and could over expose the Treasury if there is a crash.
I recently thought that Danny Alexander had remembered which Party he was a member of and I was prepared to moderate my previous critiscism of him. With his advocacy of Help-to-Buy II on tv etc, I am once more reminded why so much illiberal and selfish/immoral Tory rubbish gets presented as ‘Coalition’ policy – it’s because the Tories have 3 out of the 4 members of the decision-making Quartet.
If anyone should have been reshuffled recently it’s our hapless “Chief Secretary to the Treasury”. “We’re all doomed, Mr. Mannering”!
Thank you, Stephen Tall, for an interesting and stimulating article. I also thank all those who have commented on Stephen’s offering: I enjoyed all of them, even those with which I disagreed.
When I heard the interview with Mr Alexander, I was surprised that he refused to offer any view about future interest rates. As Mr Alexander is the No.2 politician at the Treasury, he should have an opinion based on knowledge. Certainly, we should be concerned about the finances of both banks and borrowers after interest rates rise.
The Help to Buy scheme (all of it) is a nonsense. I hope that no LD MPs were/are truly supportive of it, because it is nothing more than a vote-buying ‘wizard wheeze’ by OldCon.
Instead of this nonsense, the ConDem government should be providing financial support to both housing associations and local councils to build hundreds of thousands of genuinely affordable and social rent units of accommodation. Help to Buy will just provide cheap money for the buy-to-let and second-home customers. Oh, did I hear say that such people are not allowed to benefit from the scheme? Any capable property speculator could drive a Routemaster bus through the rules and regs.
Suggestion about a revaluation of property values (with the addition of extra price-bands) would be a great contribution to achieving sensible property prices, and would add extra income to the exchequers of cash-strapped councils.
Finally, I suggest that ‘our’ government should tell builders to ‘use it or lose it’ with regard to their huge reserves of planning applications which have been approved but not a foundation has been dug. No, I’m not suggesting land seizure but I feel that developers should be warned that they have 12 months to begin approved schemes; failure to do so should result in compulsory purchase for the price of local agricultural land.
Oh dear, I could offer many more suggestions about the local taxes on second-homes and empty properties. But please don’t worry, I shan’t – YET!!
Warm thoughts to all.
I think Nick Clegg supports this policy. So that makes two.
🙁