Good news: it looks as though the Government is set to scrap Help to Buy. The programme was introduced in 2013 to help to get more people to be able to buy their own home. No sensible economist thought it was a good idea when it was introduced, with the general consensus that it would be at best ineffectual and at worst downright dangerous.
With a well-documented cost of living crisis in the UK, tackling housing affordability is perhaps the most important policy the government can pursue. But Help to Buy was never going to be a good solution and it’s high time it was scrapped.
So, what has been the scheme’s impact and who has benefited as a result? Among the main beneficiaries have been the large housebuilding firms. Recent figures show that Help to Buy supports somewhere between 40 to 50 per cent of their sales each year.
The other big winner has been the very wealthy, with high earners using the Government’s subsidy to help them buy new-build properties. And some 32,000 households are believed to have used the programme to trade up to a bigger home in the past five years.
The fact that those who have benefited most from Help to Buy are large house building firms, the very wealthy, and those who already own a home reveals the first major flaw with Help to Buy: it is immoral. It surely cannot be right that the government confiscates the money of low earners in the form of taxation and redistributes it in order to boost the profits of large businesses and to help the wealthiest people in the country.
Help to Buy means that a young person on a low income who has very little chance of ever being able to own their own home is forced to subsidise a wealthy family who have decided that they want a bigger house.
It is not only an unjust policy, it also does nothing to end the housing crisis. It was the 14th-century Syrian scholar, Ibn Taymiyyah who stated that: “If desire for a good increases while its availability decreases, its price rises. On the other hand, if availability of the good increases and the desire for it decreases, the price comes down.” The housing affordability crisis in the UK is a problem of supply and demand. There are simply not enough homes to go around.
This is very basic economics. The reason why housing is so unaffordable is because supply has not kept pace with demand. As such, any policy which increases demand (like Help to Buy), without increasing the supply of housing will only make matters worse. Housing supply in the UK is constrained by the restrictive planning system. Countless regulations about what can be built and where keeps supply low, which in turns pushes up prices. Increasing demand through Help to Buy is, second only to destroying the UK’s housing stock, pretty much the worst policy a government could implement.
The solution to housing unaffordability is simple – liberalise the planning system, allow developers to build on the greenbelt, and scrap stamp duty.
Unfortunately, making houses cheaper was never really part of the plan when Help to Buy was introduced. George Osborne was said to have quipped that: “Hopefully we will get a little housing boom and everyone will be happy as property values go up”. As ever with Osborne, it was a nakedly political move, interfering in the housing market to shift a few votes into the Tory column.
This kind of meddling was emblematic of both Osborne and one of his predecessors as Chancellor, Gordon Brown. Tinkering with taxes and markets in order to score a few political points, regardless of the economic consequences, characterised both men’s time in office.
Help to Buy is not just cynical, it also has the potential to be incredibly dangerous. It risks exposing our government to the mortgage market just as the US government was before the 2008 crash. Do not forget that it is taxpayers’ money which is being used to underwrite these mortgages.
The whole policy is worryingly similar to the situation with Northern Rock’s 100 per cent loan-to-value, self-certified mortgages which resulted in a high proportion of mortgage-holders with very little equity. Pushing up house prices by injecting funding liquidity to the housing market will, in the long run, result in the same overstretched house price-income multiples that preceded the last few house price corrections. Given that house prices in the UK are incredibly sensitive to interest rate changes, increases in rates could have a disastrous impact on the UK’s housing market.
And if things go wrong, it will be taxpayers who have to pick up the tab.
The government wants to ensure that housing is affordable so that people, especially the young, can realise their dream of home ownership. It also wants to ensure that the housing market remains stable. These are laudable aims, but Help to Buy will achieve neither.
If we want to make sure that housing costs are not prohibitive and also have a housing market which is sustainable and continues to attract investment then the solution is simple. The government needs to liberalise the planning system to ensure that supply can keep up with demand. It also needs to stop interfering in the market in order to win a few votes.
Help to Buy is a terrible policy. It is immoral, has done nothing to fix the housing crisis, and is potentially dangerous. The government should scrap it as soon as possible.
