Comment: UK housing policy isn’t working
George Osborne’s scheme for first-time buyers will keep prices artificially high and leave consumers burdened with debt.
By Matt Griffith
Imagine yourself a hard-pressed Treasury official before one of the UK’s previous Budgets.
Britain has an ailing industry – it is a poor performer against its international competitors, producing lesser quality and more expensive products than its European counterparts. It invests little in design, is mocked by ministers and is widely seen by consumers as less desirable. It survives mainly because government restrictions keep supply low and prevent more competitive firms from entering the market.
This industry has behaved foolishly – buying too much overvalued stock on short-term debt in the good times and now finding itself in trouble with its lenders and unable to sell its products without risking making a loss.
But – as with all government dependent industries – it is also a formidable lobby, able to use arguments about negative employment impacts to pressure a government concerned about a fragile economy.
The government capitulates and agrees to a scheme. This would encourage consumers to buy the overvalued goods – the government would help provide bridging capital and packages it as a ‘helping hand’ for hard-pressed consumers. The industry wins handsomely, being paid approximately £25,000 per unit it sells. The consumer takes on a high level of debt and gains an overvalued product, which most independent economists think is overpriced to the tune of several thousand pounds. Prices are kept artificially high – adding further costs to the UK economy.
Is this something from the dying days of the Callaghan administration that no modern government would tolerate? No, unfortunately it comes direct from this week’s Budget, a Budget that claimed to be following in the intellectual footsteps of Nigel Lawson.
The industry is UK housebuilding, the consumers are first-time buyers and the government scheme is called FirstBuy – which works along very similar lines.
Jonathan Portes, director of the National Institute of Economic and Social Research (NIESR), said that FirstBuy Direct was a measure that would “exacerbate economic distortions and make things worse over the long run”.
Roger Bootle, managing director of Capital Economics, told the Treasury select committee: “I certainly would not have done this scheme to boost the position of first-time buyers. This is simply increasing demand and in the process doing nothing at all to ease the housing shortage in this country.”
For those of us concerned about young people’s housing plight, the fact that FirstBuy was centre stage to the government’s package for first-time buyers is deeply worrying.
FirstBuy has several precedents – notably the HomeBuy Direct scheme from the dying days of the Brown administration. Past experience has shown that these type of policies are dangerously pro-cyclical, in that they tend to suck in marginal buyers at the top of the market. PricedOut know of many young people who have bought into these schemes and are now struggling to sell their properties, some seeing their value plummet by as much as 25%.
The experience of HomeBuy Direct has also been that it put too much power in the hands of the developers – who were often bringing forward the least sellable properties for inclusion in the scheme and selling at above market prices.
With a market that has been as overheated as UK housing this raises real questions about how policy makers view risk – and their responsibility to buyers.
UK housing policy has a gloriously retro dysfunctionality to it. But for many young people in their 20s and 30s this unhappy coalescence of government support and an underperforming private sector is a big problem. It encourages them to take on a very large financial commitment for a risky purchase that is likely to fall in price, and it keeps prices higher than they otherwise would be.
UK housing isn’t working, it’s time the government was a lot more radical than this.
Matt Griffith is a volunteer for PricedOut, a campaign for first time buyers and for more affordable housing. He is an economic consultant with experience of UK housing and international trade negotiations.
The opinions in politics.co.uk’s Speakers Corner are those of the author and are no reflection of the views of the website or its owners.
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