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There’s merit in the Coalition’s housing proposals

21 November 2011

6:55 PM

21 November 2011

6:55 PM

The government’s announcement on housing today is an attempt to square the circle. On the one hand, a return to excessive lending and sub-prime
mortgages is clearly not a good thing. Critics say, with justification, look where government backed mortgages got America. But on the other, there are clearly problems when people who aren’t
fortunate enough to have parental help aren’t getting on the housing ladder until well into their thirties. Conservatives who understand the importance of a property-owning democracy should be
concerned about this.

The Coalition’s solution — and this is the most genuinely coalition piece of policy we’ve seen in months — is partial government indemnities for people taking out 95 per cent mortgages
on new build properties. There are, obviously, worries about the government getting involved in the housing market given recent history. But I understand that under this scheme even a 20 per cent
fall in house prices would only result in a government exposure in the low tens of millions.

This is to be combined with changes to the planning laws which should significantly increase the supply of houses. Allister Heath makes a typically cogent argument that this is where all of the government’s energies should be
concentrated. But, on balance, I think there’s merit to the Coalition’s approach.

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Show comments
  • Dimoto

    Lots of people on here, purport to believe in “markets” then keep parroting the Labour refrain about “over-priced housing”.

    This is typified by Pete from Maidstone @ 9.19,who seems to believe in a strange new concept of “real worth”, which excludes supply and demand !

  • Ed Stevenson

    There is not a shortage of housing in the UK. Think about it, if there was a genuine shortage we would have families living on the street because they physically couldn’t find a place to live.

    When politicians say there is a “shortage of housing” what they mean is that there is a shortage of housing that is within the price range of low income families.

    To correct this we need to correct two distortions to the operation of the housing market which have caused the problem.

    First problem – too much cheap credit has led to inflated house prices (including the buy to let market being born). This is simple supply/demand economic – increase the supply of money available for housing and house prices will rise to match. The solution to this problem is to gradually lower the sums that can be borrowed based on a borowing to income ratio.

    Second problem – “social housing” (or council flats, as they used to be called.

    In their desire to assist the least well off, politicans have taken the lowest earners out of the market for housing. This has naturally had an inflationary effect on private housing, because social housing has raised the wealth of the average homebuyer by removing the poorest segment. Again, supply/demand economics.

    The Government already incentivises council tenants to buy their homes, which is good. They should combine this with a total freeze on all state assisted building of housing.

    The above, if implemented, would have the effect of dramatically increasing the stock of affordable houses by realigning prices with people’s earnings. It would achieve this aim without wasting more public money.

  • Percy

    Heartwarming pictures on the news of Dave and his sidekick visiting some proles in the new little shoebox they’ve been lucky to buy; not remotely patronising.

  • normanc

    ‘But I understand that under this scheme even a 20 per cent fall in house prices would only result in a government exposure in the low tens of millions’

    In other words you’ve been given that line to spin. Sigh, it seems our political class have learnt nothing if this is the line to be taken.

    It doesn’t matter if the government loses a few hundred million, or even a couple of billion, in this madcap scheme, such is the monstrous amount of money wasted annually.

    What matters is the knock-on effect. By giving a ‘boost-up’ to people who could not otherwise get a mortgage they will be increasing the banks exposure to this, as well as distorting the market which will ripple up through the so-called housing ladder to people who aren’t affected directly by this scheme.

    It is this kind of wrong headed thinking and the looking for a quick fix, as always, that has so many of us tearing our hair out.

  • libertarian

    No, there is NO merit what so ever in Dave’s cunning new Baldrick like plan to introduce sub prime buying into the UK.

    Peter fromMaidstone is quite correct to raise the issues he does. Peter by the way Maidstone Council have just approved the building of 11,000 more homes on greenfield sites in your borough. Where I live in SE rural town 38,000 new houses have been/are being built on greenfield sites, the 14000 that are already built are either empty or the owners are desperately trying to sell up at rock bottom prices. The reason the govt gave for building these houses here was to encourage people to move to where the jobs are, they then make somewhere completely different and not in this region an enterprise zone.

    When will people wake up and realise that politicians are the problem and they have NO solutions that are realistically viable

  • TomTom

    Mortgages were securitised until wholesale money markets closed. Banks then sit with mortgages on their balance sheets, and must provision against bad debt. They don’t want any more mortgages.

    The Mortgage Boom was created by Government to refinance the banks after the Dot-Com Bust. We now have QE to fund the Banks after the Credit Bust. Why would Banks be so punch-drunk as to start over again when they have problems rolling over existing debt ?

    Who will provide the £150,000,000,000 Lloyds needs NOW to keep existing Loans funded ?

  • Simon Stephenson.

    I left out the link to the Halifax index in my recent post:-

  • Simon Stephenson.

    For those of you who believe something other than the price level to be chief cause of the problems in the housing market, here are some salient statistics taken from the Halifax House Price Index (*):-

    1. In September 2011 the ratio of Average House Price to Average Earnings continued its fall from a peak of 5.82 (April 2007), declining to a figure of 4.37.

    2. Other than a blip in April 2009 (4.33), the ratio has not been lower than 4.37 since January 2003, when it was registered at 4.33.

    3. The Halifax records start from April 1983. Of the 237 months between the start of the records and December 2002, there were no more than 28 in which the average was 4.33 or greater – October and November 2002, and June 1988 to July 1990.

    4. The movements over the same period in Real Average House Prices, discounted by RPI, show broadly similar results.