Investment Markets » Construction and Property
Rescuing The Housing Market
Has Gordon Brown produced a viable recovery plan, or merely a short-term survival strategy for himself?
Given that scarcely a day has gone by this summer without some bad news about the housing market, it was sensible for the Prime Minister to begin his autumn fight-back by offering some consolation in this area. But the long-awaited package fell short of expectations, as well as posing questions about the Government's capacity for joined-up thinking.
The £1bn proposal, introduced by Housing Minister Hazel Blears, is mainly intended to help first-time buyers and homeowners in financial difficulty. The main measures include: a year-long "stamp duty holiday" on residential property sold for less than £175,000; a shared equity plan offering low- to middle-income families free loans of up to a third of a property's value; a mortgage rescue scheme for those vulnerable to repossession; and extra cash to allow social landlords and councils to build more affordable homes.
Some of the proposals are welcome, but taken as a whole, the package is a cloud of confusion. Smoothing the rough edges of a housing slump is one thing; trying to offset the decline is quite another. The temporary cut in stamp duty, for instance, will have no more effect on boosting the market than King Canute's command to the tides.
Why would buyers rush into a falling market to save £1,750 when, on current trends, they could hope to save ten times as much if they waited a year?
Why indeed. The unaffordability problem is rapidly being solved without government intervention; the only sensible policy is to let the market find its own level. There are few problems so bad that a government cannot make them ten times worse by intervening, and this attempted bailout is no exception. By protecting borrowers and lenders from the consequences of their actions, the Government will simply be encouraging even more reckless behaviour in the next housing boom.
Government interventions have a history of creating damaging distortions in markets, but these proposals are so irrelevant that they can't possibly have any impact. Britain's housing market has ground to a standstill because mortgage financing has dried up.
If the £200bn that the Bank of England has made available to lenders has had no appreciable impact, it's hard to see how the Government's piffling £1bn will alleviate the problems.
This package doesn't stand a chance of putting a floor under the property market. But that's not how it will be judged in Whitehall anyway. Its primary purpose is to provide Gordon Brown with breathing space while he fights for his political life. It may not succeed even in that.
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