Monday, 12 March 2012

Getting it wrong on housing

The coalition Government has made a series of announcements today on housing.  The NewBuy scheme offers mortgage subsidies and guarantees for those looking to buy new homes.  At the same time the Government argues that it wants to rejuvenate the right to buy scheme by offering substantial discounts on prices - up to £75,000 after five years' residence in their social housing.

Both measures are dripping with ideology - Cameron has weighed in with sonorous declarations about home ownership being the key to a stable democracy.  More prosaically, critics argue that the NewBuy scheme is in effect a way of providing to the ailing and traditionally Tory-leaning house building industry.

My main complaint is that, in both cases the measures will do precisely nothing to alleviate what even Conservative politicians agree is a national housing crisis.  In macroeconomic terms, both appear overwhelmingly likely make things worse.

What are the roots of the housing crisis in Britain?  It's quite obvious that there is a crisis when the price of the most fundamental good of all has accelerated way ahead of growth in pay in real terms.  Housing has become more expensive than at any time in recent history.  A person earning the median UK average income has little prospect of being able to buy a house - the idea that soaring house prices are an indication of prosperity is in my view absolutely grotesque.  Yes, some people are sitting on paper assets which have expanded substantially - but soaring house prices represent a huge transfer of wealth from the poor and young to the old and rich, and represent a speculative bubble that, even amid house price falls in the last couple of years, has yet to burst properly (the falls in recent years have simply disgruntled the wealthy without making houses - especially at a time when real incomes are falling - more affordable).  And it encourages the sort of property speculation that fuels lending booms  - every economic crisis since 1973 has had its roots in property speculation.  Moreover, and quite obviously, poor housing is at the root of many of the most acute social ills we face as a society.

In macroeconomic terms, the measures announced today will in the longer term bid up prices and make the situation worse.  Subsidising mortgages, offering guarantees and above all effectively slashing the price of buying a social house will do little or nothing to boost supply while potentially increasing demand.  It's really just accelerating the housing trends that have been so destructive in the last three decades.  At the very best its a footling response to the crisis; most likely it will simply make things worse.

What is the answer?  More and better social housing, of course, with the public sector driving forward a programme to construct hundreds of thousands of decent affordable homes for rent.  It would both stimulate the economy and help get us out of the cycle of unstable house prices.  It's simple, it's about as good an investment as any society would make, and it will never happen because, unlike our neighbours in Europe, our political and media classes simply cannot get past the ideology of home ownership

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