After assaults from outgoing Bank of England governor Sir Mervyn King, the IMF and practically every economist out there, things aren't looking good for chancellor George Osborne's Help to Buy scheme. From a SocGen note by Albert Edwards:
From Andrew Bridgen, senior economist for Fathom Consulting, a forecasting firm run by former Bank of England economists. Bridgen said: “Help to Buy is a reckless scheme that uses public money to incentivise the banks to lend precisely to those individuals who should not be offered credit. Had we been asked to design a policy that would guarantee maximum damage to the UK’s long-term growth prospects and its fragile credit rating, this would be it.”
Now even the Council of Mortgage Lenders, those who probably stand to benefit most from this policy, are getting edgy. Their director general, Paul Smee:
We agree with Sir Mervyn about the need for a clear way out of the scheme after three years. Just over 12 months ago, as the stamp duty holiday for first-time buyers was coming to an abrupt end, I was spending a lot of time attempting to explain the distortions in lending it was creating. Essentially, what we had was a bubble in the number of transactions on one side of the scheme’s end and a desert on the other. We need a better planned exit route for Help to Buy.
Is there now anyone left defending Osborne? Things are looking lonely for a chancellor introducing a scheme that looks certain to see prices go even higher.
Warwick University's Nicholas Crafts seems to have the right idea; liberalising housebuilding rules could be just the boost the UK needs, while helping to make housing more affordable:
With more liberal planning rules, the equilibrium housing stock might increase by 2m. Building these houses over a decade would help construction, add about 2 per cent to GDP each year, make houses more affordable, and address a real social need.
A house building-led recovery, stimulated by de-regulation rather than fiscal largesse, seems attractive to many economists. Unfortunately, the politics looks very different. Unless a way can be devised to achieve a major liberalisation of land-use planning, without losing swathes of votes in the South-East, this is a non-runner. “Cheap money” today would raise house prices rather than the construction of houses.