(Source: Getty Images)
The voices (loudly) arguing that chancellor George Osborne's Help to Buy scheme could be disastrous are growing.
City A.M.'s Allister Heath:
But we are likely to end up with a localised bubble in property, thanks to the chancellor’s short-sighted help to buy scheme, which will guarantee and part-finance vast numbers of mortgages, including perhaps – and despite the coalition’s stated intention – some second home buyers.
The Institute of Economic Affairs' Kristian Niemietz:
But wasteful though the policy will be, it is probably not big enough to cause major damage to the public finances. The mortgage guarantee’s main flaw is on a more basic level: it mistakes a supply-side problem for a demand-side problem.
The problem is that, compared to other European countries, levels of homebuilding in the UK have been extremely low for at least four decades. The current collapse is not unique to the UK, but the stifling of residential development in the preceding decades is. And unless we have a complete overhaul of the planning system in the meantime, the same constraints that have kept homebuilding down for 40 years will start to bite again once the economy recovers.
The Financial Times' Martin Wolf:
This is good politics and horrendous economics. Since the peak of the boom, UK house prices have fallen by only 16 per cent in real terms, against some 40 per cent in the US. The ratio of median earnings to median house prices has fallen only 7 per cent from its peak. The government is encouraging people to leverage themselves up to the hilt in order to buy what is already likely to be overpriced property and, as a result of this policy, is likely to become still more so. This is irresponsible enough. But worse, the government will probably now find itself permanently using its balance sheet to support risky housing finance, as the US has done. The market cannot sensibly finance such high loan-to-value ratios. But this fundamental lesson from the crisis is now being thrown away.
Sky News' Ed Conway:
More broadly, why is it that Governments spend so much money attempting to force people onto the housing ladder? Plenty of developed economies function perfectly well with home ownership levels well below those of the UK. Yet, like every Government for decades, this one is intent on doing whatever it can to increase home ownership.
The Adam Smith Institute's Sam Bowman:
Apparently the Treasury has not learned the lesson of 2008: injecting taxpayer money into the housing sector will simply inflate prices, distorting price signals and stoking the housing bubble that already seems to be growing in the housing sector. Houses are expensive because supply is restricted by the planning system. Instead of throwing money at the problem and driving prices up even more, the government should have the courage to liberalize planning to allow more development, including on green belt land.