Stop the housing Ponzi scheme

The government's new housing policy will collapse sooner or later like a fraudulent investment strat

Yesterday the government unveiled its housing strategy to "get the housing market moving again". The centrepiece was a mortgage indemnity scheme to help first-time buyers to get on the property ladder. But this policy is a disastrous waste of taxpayers' money that will satisfy nobody.

The mortgage indemnity scheme is set to make it possible for first-time buyers to borrow if they can find a deposit of just 5 per cent of the property value. Lenders, meanwhile, will offer the remaining 95 per cent, safe in the knowledge that the first 14 per cent of losses on a house that later sells for less than its initial price will be taken by either the buyer's deposit, or the taxpayer and house-builder's guarantees that cover the other 9 per cent. Whatever happened, you might ask, to the Government's mantra that "you can't get out of a debt crisis by taking on more debt"?

This is a bad deal for taxpayers. There are good reasons why lenders are currently unwilling to offer 95 per cent mortgages on the open market, and 90 per cent loans are rare. Mortgage providers are signalling that they expect prices to fall, and don't want to lose their money when they do. The current housing market very closely resembles a Ponzi scheme where new investors to the scheme (in this case first-time buyers) pay for the returns to existing members (higher house-prices for owners). As with all Ponzi schemes, this scam can't go on forever -- sooner or later you run out of unsuspecting new investors and the whole thing collapses. It's unfortunate, then, that the Government feels that it's wise to devote taxpayers' cash to one final round of pumping up the property bubble.

For similar reasons, the scheme is a false friend for first-time buyers. The current scarcity of highly leveraged loans for first-time buyers is a helpful signal to them to stay away from the precarious housing market. By meddling with those signals, the indemnity plan risks tempting hard-up young people into a falling housing market -- fodder for the last round of the Ponzi scheme.

Even business is likely to be disadvantaged by the scheme. With government offering attractive guarantees for residential mortgage lending, it would be unsurprising to see banks diverting funds away from vital lending to UK businesses in favour of unproductive property. This is the last thing we need in the current business lending drought.

Meanwhile, the real beneficiaries of the policy will be house-builders, who will be able to continue to sell over-priced property. But then there's always someone who benefits from a Ponzi scheme.

So at best, by buttressing house prices with taxpayer cash, this policy will be a simple transfer of wealth from young people without assets to older citizens with lots of housing wealth. At worst it will tempt vulnerable young buyers with little money into a falling market, wiping out their nest-eggs, and making the rest of us pay for it through our taxes.

Instead of this we need a real solution to the problem of unaffordable housing. House prices are high right now for two reasons: the emergency measures in place to deal with the credit crunch, and excessively restrictive planning laws. Rock-bottom interest rates are allowing existing home-owners to sustain huge mortgage debts -- for now. But this support for prices is temporary, simply postponing the day of reckoning when some owners will have to crystalise the losses on their over-priced properties. When that happens first-time buyers will find property much more affordable.

In the medium term, if we want our citizens to live in civilised conditions, the answer is to liberalise planning laws to allow house-builders to create homes where people actually want them. How often do you appreciate, say, the fallow scrub land of the green belt just south of Junction 26 on the M25? And now contrast this with how often you lament the absurd sums needed to afford that bigger house that would better suit your family's needs.

Until we recognise that these things are connected and have a level-headed discussion about the trade-offs, we will never be able to give our citizens the "dream of home-ownership" the Prime Minister aspires to, at a reasonable cost. But whatever your view on the long-term trade-off, one thing we should all agree on is that politicians should stay out of housing finance. It's time the government stopped trying to prop up the absurd UK property Ponzi scheme.

Ian Mulheirn is Director of the Social Market Foundation.

Ian Mulheirn is the director of the Social Market Foundation.

Daily Mail
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Who "speaks for England" - and for that matter, what is "England"?

The Hollywood producer Sam Gold­wyn once demanded, “Let’s have some new clichés.” The Daily Mail, however, is always happiest with the old ones.

The Hollywood producer Sam Gold­wyn once demanded, “Let’s have some new clichés.” The Daily Mail, however, is always happiest with the old ones. It trotted out Leo Amery’s House of Commons call from September 1939, “Speak for England”, for the headline on a deranged leader that filled a picture-free front page on David Cameron’s “deal” to keep Britain in the EU.

Demands that somebody or other speak for England have followed thick and fast ever since Amery addressed his call to Labour’s Arthur Greenwood when Neville Chamberlain was still dithering over war with Hitler. Tory MPs shouted, “Speak for England!” when Michael Foot, the then Labour leader, rose in the Commons in 1982 after Argentina’s invasion of the Falklands. The Mail columnist Andrew Alexander called on Clare Short to “speak for England” over the Iraq War in 2003. “Can [Ed] Miliband speak for England?” Anthony Barnett asked in this very magazine in 2013. (Judging by the 2015 election result, one would say not.) “I speak for England,” claimed John Redwood last year. “Labour must speak for England,” countered Frank Field soon afterwards.

The Mail’s invocation of Amery was misconceived for two reasons. First, Amery wanted us to wage war in Europe in support of Hitler’s victims in Poland and elsewhere and in alliance with France, not to isolate ourselves from the continent. Second, “speak for England” in recent years has been used in support of “English votes for English laws”, following proposals for further devolution to Scotland. As the Mail was among the most adamant in demanding that Scots keep their noses out of English affairs, it’s a bit rich of it now to state “of course, by ‘England’. . . we mean the whole of the United Kingdom”.

 

EU immemorial

The Mail is also wrong in arguing that “we are at a crossroads in our island history”. The suggestion that the choice is between “submitting to a statist, unelected bureaucracy in Brussels” and reclaiming our ancient island liberties is pure nonsense. In the long run, withdrawing from the EU will make little difference. Levels of immigration will be determined, as they always have been, mainly by employers’ demands for labour and the difficulties of policing the borders of a country that has become a leading international transport hub. The terms on which we continue to trade with EU members will be determined largely by unelected bureaucrats in Brussels after discussions with unelected bureaucrats in London.

The British are bored by the EU and the interminable Westminster arguments. If voters support Brexit, it will probably be because they then expect to hear no more on the subject. They will be sadly mistaken. The withdrawal negotiations will take years, with the Farages and Duncan Smiths still foaming at the mouth, Cameron still claiming phoney victories and Angela Merkel, François Hollande and the dreaded Jean-Claude Juncker playing a bigger part in our lives than ever.

 

An empty cabinet

Meanwhile, one wonders what has become of Jeremy Corbyn or, indeed, the rest of the shadow cabinet. The Mail’s “speak for England” leader excoriated him for not mentioning “the Number One subject of the hour” at PM’s Questions but instead asking about a shortage of therapeutic radiographers in the NHS. In fact, the NHS’s problems – almost wholly caused by Tory “reforms” and spending cuts – would concern more people than does our future in the EU. But radiographers are hardly headline news, and Corbyn and his team seem unable to get anything into the nation’s “any other business”, never mind to the top of its agenda.

Public services deteriorate by the day, George Osborne’s fiscal plans look increasingly awry, and attempts to wring tax receipts out of big corporations appear hopelessly inadequate. Yet since Christmas I have hardly seen a shadow minister featured in the papers or spotted one on TV, except to say something about Trident, another subject that most voters don’t care about.

 

Incurable prose

According to the Guardian’s admirable but (let’s be honest) rather tedious series celeb­rating the NHS, a US health-care firm has advised investors that “privatisation of the UK marketplace . . . should create organic and de novo opportunities”. I have no idea what this means, though it sounds ominous. But I am quite certain I don’t want my local hospital or GP practice run by people who write prose like that.

 

Fashionable Foxes

My home-town football team, Leicester City, are normally so unfashionable that they’re not even fashionable in Leicester, where the smart set mostly watch the rugby union team Leicester Tigers. Even when they installed themselves near the top of the Premier League before Christmas, newspapers scarcely noticed them.

Now, with the Foxes five points clear at the top and 7-4 favourites for their first title, that mistake is corrected and the sports pages are running out of superlatives, a comparison with Barcelona being the most improbable. Even I, not a football enthusiast, have watched a few matches. If more football were played as Leicester play it – moving at speed towards their opponents’ goal rather than aimlessly weaving pretty patterns in midfield – I would watch the game more.

Nevertheless, I recall 1963, when Leicester headed the old First Division with five games to play. They picked up only one more point and finished fourth, nine points adrift of the league winners, Everton.

 

Gum unstuck

No, I don’t chew toothpaste to stop me smoking, as the last week’s column strangely suggested. I chew Nicorette gum, a reference written at some stage but somehow lost (probably by me) before it reached print.

Editor: The chief sub apologises for this mistake, which was hers

Peter Wilby was editor of the Independent on Sunday from 1995 to 1996 and of the New Statesman from 1998 to 2005. He writes the weekly First Thoughts column for the NS.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle