Help to Buy will inflate another housing bubble

One major part of the scheme, hurriedly brought forward by three months in an attempt to counter Labour’s populist announcements, is potentially toxic.

The Conservative Party has spent the past fortnight accusing Labour of reviving 1970s-style socialism in the form of policies such as a temporary freeze in energy prices. The irony is that it has done so while undertaking the largest-ever state intervention in the housing market. With the introduction of its Help to Buy scheme, the government that arrived in office committed to rebalancing the economy away from its reliance on property and private debt has adopted a policy that will encourage the reverse.

The first part of the scheme, which came into effect in April, is a justified intervention. By allowing buyers to borrow 20 per cent of the value of a new-build home worth up to £600,000, the government is seeking to incentivise housebuilding, which last year stood at its lowest level since the 1920s. After six months, it has had some success. In September, construction activity grew at its fastest rate since November 2003, helping to stimulate growth and employment.

It is the second part of the scheme, hurriedly brought forward by three months in an attempt to counter Labour’s populist announcements, that is potentially toxic. George Osborne, ostensibly a fiscal conservative, has issued £12bn of state guarantees for up to £130bn of mortgage lending. The offer applies to all properties, whether new-build or not, and will allow buyers to purchase homes worth up to £600,000 provided they make a deposit of at least 5 per cent.

In an attempt to emulate the success of Margaret Thatcher, whose Right to Buy council house scheme increased the Tories’ electoral fortunes among low- and middle-income groups, David Cameron has presented the intervention as one aimed at supporting first-time buyers. He declared during the Conservative conference: “As Prime Minister I am not going to stand by while people’s aspirations to get on the housing ladder are being trashed.”

Yet the early signs are that Help to Buy will do less to aid would-be buyers than Mr Cameron suggests. Those banks participating in the scheme are offering interest rates around 5 per cent, above the level that many can afford when average earnings are still 1.7 points below inflation. As such, the policy risks acting primarily as a subsidy for existing homeowners seeking to trade up or to borrow against the value of their property. Mr Osborne’s decision to set the cap for aid at £600,000, when the average house price is £172,000, is evidence that he is more concerned with creating a pre-election feel-good factor among Tory-leaning owners than he is with aiding firsttime buyers.

Even as it allows some to make it on to the ladder, the scheme risks blocking the route for others by further widening the gulf between prices and earnings.

David Cameron meets two first time buyers as the Government launches the Help to Buy scheme. Image: Getty

This article first appeared in the 11 October 2013 issue of the New Statesman, Iran vs Israel

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Why Theresa May can't end speculation of an early general election

Both Conservative and Labour MPs regard a contest next year as the solution to their problems. 

One of Theresa May’s first acts as a Conservative leadership candidate was to rule out an early general election. After a tumultuous 2015 contest and the EU referendum, her view was that the country required a period of stability (a view shared by voters). Many newly-elected Tory MPs, fearful of a Brexit-inspired Ukip or Liberal Democrat surge, supported her on this condition.

After entering Downing Street, May reaffirmed her stance. “The Prime Minister could not have been clearer,” a senior source told me. “There won’t be an early election.” Maintaining this pledge is an important part of May’s straight-talking image.

But though No.10 has wisely avoided publicly contemplating an election (unlike Gordon Brown), the question refuses to die. The Conservatives have a majority of just 12 - the smallest of any single-party government since 1974 - and, as David Cameron found, legislative defeats almost inevitably follow. May’s vow to lift the ban on new grammar schools looks to many like an unachievable task. Former education secretary Nicky Morgan and former business minister Anna Soubry are among the Tories leading the charge against the measure (which did not feature in the 2015 Conservative manifesto).  

To this problem, an early election appears to be the solution. The Tories retain a substantial opinion poll lead over Labour, the most divided opposition in recent history. An election victory would give May the mandate for new policies that she presently lacks.

“I don’t believe Theresa May wishes to hold an early election which there is evidence that the country doesn’t want and which, given the current state of the Labour Party, might be seen as opportunistic,” Nigel Lawson told today’s Times“If, however, the government were to find that it couldn’t get its legislation through the House of Commons, then a wholly new situation would arise.”

It is not only Conservatives who are keeping the possibility of an early election alive. Many Labour MPs are pleading for one in the belief that it would end Jeremy Corbyn’s leadership. An early contest would also pre-empt the boundary changes planned in 2018, which are forecast to cost the party 23 seats.

For Corbyn, the possibility of an election is a vital means of disciplining MPs. Allies also hope that the failed revolt against his leadership, which Labour members blame for the party’s unpopularity, would allow him to remain leader even if defeated.

Unlike her predecessors, May faces the obstacle of the Fixed-Term Parliaments Act (under which the next election will be on 7 May 2020). Yet it is not an insurmountable one. The legislation can be suspended with the backing of two-thirds of MPs, or through a vote of no confidence in the government. Alternatively, the act could simply be repealed or amended. Labour and the Liberal Democrats, who have demanded an early election, would struggle to resist May if she called their bluff.

To many, it simply looks like an offer too good to refuse. Which is why, however hard May swats this fly, it will keep coming back. 

George Eaton is political editor of the New Statesman.