The Government is planning to loan people significant money in order to find the deposit on a new-build house. Now. I think the major problem with the UK economy in the long-term is Britons’ habit of seeing a house as an investment, assuming “bricks and mortar” can beat inflation in the long run. Of course, if the supply is held below the growth in the number of households, as it is in the UK, this will be true. The result of this endless house-price inflation is no-one can afford a house big enough for their family, unless they quit work early enough to get on the Council house waiting list.
Thus house-price inflation keeps the existing rich, rich as wealth is transferred from non-home-owners to home owners. It also helps Labour’s client state, as they can never hope to afford to be free of the welfare state, thanks to the cost of putting a roof over your head.
The young, and those in the middle income brackets are forced to spend enormous percentages of their income on housing themselves. In response, houses have got smaller, people are more likely to share. In short, house-price inflation, like all other forms of inflation makes people poorer.
If you’re on the Right, you might point to the massive subsidy at the bottom distorting the market, housing benefit, which mainly transfers taxpayers’ money to private sector landlords. You might see cutting HB as a solution. If you’re on the left, you won’t see beyond Social Housing – basically demanding the council build more estates and manage them as a letting agent.
The real solution is to build more houses, so many in fact that house prices rise by less than inflation and keep doing this for a couple of decades. Unfortunately the two metrics on which a UK government is judged are unemployment and house-prices. Home-owners are vastly more likely to vote than renters, and are enormously exposed to this one metric. For this reason, and others all home-owners always vote against all development, anywhere, ever. So any politician who espouses the policies which will result in enough houses being built, will get voted out.
I am not sure subsidising lending to people with marginal deposits is the right way to go. But at least it’s only for new-build. And the fact that there’s no restrictions – aspiring private-sector landlords CAN apply for this funding (at least until they U-Turn on this) it might actually work to encourage a few more developments at the margin.
Of course what is really needed is a big easing of planning regulations, and a removal of the need for such huge percentages of new developments to be earmarked for Labour’s client state to be provided at cost (for this is what social housing is) which is holding back so much development. Without social housing, building would be more profitable, which means more would be done, without waiting for the land value to rise due to scarcity.
This is being SOLD as a means to “stimulate” the housing market and help buyers with a deposit. What it actually is, is a subsidy for developers and banks who’ll be able to lend at lower risk. I will result in a few more houses being built at the margin. It wouldn’t be my way of doing it. But it isn’t totally insane.