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Housing market: the rule of bad ideas Housing market: the rule of bad ideas
(4 months later)
Hats off to Mervyn King. By voicing his doubts about the government's £130bn gamble on the housing market, the outgoing Bank of England governor has restarted a vital debate. George Osborne's proposal in the March budget to guarantee mortgages has not received sufficient scrutiny – perhaps because it is not up for dispute. Come what may, it will be introduced next January. But Sir Mervyn's anxiety about the gigantic risk to the taxpayer of guaranteeing mortgages is justified. Indeed, that is only one ugly facet of this hideous bit of policy-making.Hats off to Mervyn King. By voicing his doubts about the government's £130bn gamble on the housing market, the outgoing Bank of England governor has restarted a vital debate. George Osborne's proposal in the March budget to guarantee mortgages has not received sufficient scrutiny – perhaps because it is not up for dispute. Come what may, it will be introduced next January. But Sir Mervyn's anxiety about the gigantic risk to the taxpayer of guaranteeing mortgages is justified. Indeed, that is only one ugly facet of this hideous bit of policy-making.
The chancellor, who likes to say "you can't cure a crisis caused by debt with more debt", has wedged at the heart of his economic strategy a scheme to do just that – except this time it will not be the sovereign state that takes on debt, but thousands of households. The coalition that vowed to rebalance the lopsided economy has apparently given up on all that: the much-castigated (not least by David Cameron), dangerous, busted model is fine – so long as it yields enough growth to win the next election. And the answer to unaffordable housing is not to provide more, but to pump up a property bubble and hope that developers might be persuaded to plonk down a few extra breezeblocks. While it was easy to pick over the gaffes in last year's "omnishambles" budget, the potential problems with the housing schemes in this year's budget run far bigger than pricier Cornish pasties.The chancellor, who likes to say "you can't cure a crisis caused by debt with more debt", has wedged at the heart of his economic strategy a scheme to do just that – except this time it will not be the sovereign state that takes on debt, but thousands of households. The coalition that vowed to rebalance the lopsided economy has apparently given up on all that: the much-castigated (not least by David Cameron), dangerous, busted model is fine – so long as it yields enough growth to win the next election. And the answer to unaffordable housing is not to provide more, but to pump up a property bubble and hope that developers might be persuaded to plonk down a few extra breezeblocks. While it was easy to pick over the gaffes in last year's "omnishambles" budget, the potential problems with the housing schemes in this year's budget run far bigger than pricier Cornish pasties.
Sir Mervyn's objection to the government's help to buy scheme, as aired on Sunday, was of the technical, conservative type. He sees the programme as "a little too close for comfort to a general scheme to guarantee mortgages" – resembling Washington's Fannie Mae scheme, with its huge off-balance-sheet support of the home-loans market in order to ensure the average American household could afford to buy a property. The Bank governor is implying that, should house prices collapse, taxpayers will end up having to bail out the scheme – just as happened with George Bush's $800bn bailout of Fannie and Freddie Mac in the summer of 2008. Given that UK house prices trebled in the decade up till 2008, and have only fallen back an average of 20% since, there is plenty of reason to suppose that property values may slide further. But it's also quite easy to imagine an intermediate scenario in which the housing market drifts downwards, not forcing a crisis for the public finances but leaving thousands of Britons in government-promoted negative equity. And if that plausible prospect doesn't sound grim enough, just consider: these billions could have kickstarted renewal of Britain's knackered infrastructure, or indeed to provide more public housing.Sir Mervyn's objection to the government's help to buy scheme, as aired on Sunday, was of the technical, conservative type. He sees the programme as "a little too close for comfort to a general scheme to guarantee mortgages" – resembling Washington's Fannie Mae scheme, with its huge off-balance-sheet support of the home-loans market in order to ensure the average American household could afford to buy a property. The Bank governor is implying that, should house prices collapse, taxpayers will end up having to bail out the scheme – just as happened with George Bush's $800bn bailout of Fannie and Freddie Mac in the summer of 2008. Given that UK house prices trebled in the decade up till 2008, and have only fallen back an average of 20% since, there is plenty of reason to suppose that property values may slide further. But it's also quite easy to imagine an intermediate scenario in which the housing market drifts downwards, not forcing a crisis for the public finances but leaving thousands of Britons in government-promoted negative equity. And if that plausible prospect doesn't sound grim enough, just consider: these billions could have kickstarted renewal of Britain's knackered infrastructure, or indeed to provide more public housing.
The biggest cause of Britain's housing headache can be described in two numbers: 100,000 and 240,000. The first is the average total of homes built each year since the worst of the credit crunch; the second is the benchmark for many homes are needed each year to meet demand. Following Labour's lead, this coalition has hoped to close the gap with schemes aimed at subsidising the private sector – either to buyers or subsiding builders. Programmes bearing names such as FirstBuy or Build to Rent have been launched year after year, normally with some grandiose target for the new homes that will result. The NewBuy guarantee announced in March 2012, for instance, was meant to help 100,000 home sales; by the end of last year, according to Noble Francis of the Construction Products Association, it had only accounted for 1,522 sales.The biggest cause of Britain's housing headache can be described in two numbers: 100,000 and 240,000. The first is the average total of homes built each year since the worst of the credit crunch; the second is the benchmark for many homes are needed each year to meet demand. Following Labour's lead, this coalition has hoped to close the gap with schemes aimed at subsidising the private sector – either to buyers or subsiding builders. Programmes bearing names such as FirstBuy or Build to Rent have been launched year after year, normally with some grandiose target for the new homes that will result. The NewBuy guarantee announced in March 2012, for instance, was meant to help 100,000 home sales; by the end of last year, according to Noble Francis of the Construction Products Association, it had only accounted for 1,522 sales.
More than 30 years after Margaret Thatcher introduced right to buy, and decades into a crisis of affordable housing, it is well past time to recast our property system. The old equilibrium of public losses and private gains, as exemplified by Mr Osborne's benighted help to buy, is surely on its last legs. We need more public housing, and with interest rates on government borrowing so low and joblessness so high, this is the ideal time to underwrite local-council building of urgently needed homes. If not now, when?More than 30 years after Margaret Thatcher introduced right to buy, and decades into a crisis of affordable housing, it is well past time to recast our property system. The old equilibrium of public losses and private gains, as exemplified by Mr Osborne's benighted help to buy, is surely on its last legs. We need more public housing, and with interest rates on government borrowing so low and joblessness so high, this is the ideal time to underwrite local-council building of urgently needed homes. If not now, when?
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