Think tank slams Help to Buy: "government is the housing crisis"

The Adam Smith Institute has accused the government of propping up the housing bubble.

The Government's Help to Buy scheme has come under sharp attack from the Adam Smith Institute, which writes that it:

will raise the height of all the rungs on the housing ladder by boosting house prices… [and] redistributes wealth from taxpayers to house buyers.

The key to the Institute's analysis is that the British housing market is suffering a problem of supply, not of demand. That's an analysis which bridges the normal left-right divide, and puts the ASI on the same side as many on the left (indeed, that coalition is also why the ASI's Preston Byrne has written for the New Statesman on the housing crisis several times). And the report lays out compelling reasons to support that analysis:

A 2010 House of Commons briefing paper wrote, “it has been clear for some time that housing supply is not keeping up with demand,” adding that there are “significant levels of overcrowding in the private and social housing stock.” However, the briefing continues, reductions in the price of housing accompanying the recession have done little to improve its affordability, as price falls have been accompanied by “by tighter lending criteria, particularly larger deposit requirements,” such that poor working families in rented accommodation, even assuming spartan personal budgets with little or no provision for incidentals, would need to save for several decades in order to purchase a house in most major urban centres…

Housing stock in the capital’s 10 most expensive boroughs is now worth more, taken together, than the entire property markets of the rest of Northern Ireland, Wales and Scotland combined.

The government's approach to fixing the housing supply problem is to boost demand, in the hope that builders will follow through. And to a certain extent, their analysis of what's holding back demand is correct:

The 2013 Budget makes it clear that the government believes lack of access to finance is the primary problem.

Once prices reach the sky-high levels they currently sit at in the south east of the country, then the big bottleneck is likely to be access to finance. In 1997, "the average house cost 3.54 times the median wage" but "by 2011 one cost 6.65 times the median wage". Lenders who may have been happy to loan four times someone's salary are likely to be considerably less happy to offer seven times that.

Help to Buy sets out to improve that situation, but does so in two ways which are woefully substandard. One, an equity loan, subsidises the homeowner in their purchase by offering an interest-free loan on up to 15 per cent of the value of the house; the second involves a guarantee to the lenders of up to 80 per cent of the value of the homes they have lent against.

The latter is most punishingly described as Britain's Fannie Mae. That organisation, as well as its sibling Freddie Mac, both played a similar role in the US mortgage market for years leading up to the crash. But when the housing bubble popped:

the extent to which the taxpayer was potentially liable was the difference between (1) the prices at which Fannie and Freddie issued their debt, and (2) the price Fannie and Freddie would have to pay the private sector to take on those risks in the event of a default.

In the US, that difference was 0.4 percentage points, but "with combined assets of over $5 trillion, 0.4 percentage points represents a very substantial figure".

That risk to taxpayers represents an all-or-nothing gamble. If the bubble pops, we'll be firmly out of pocket, but it's possible that the risk will end up coming to nothing. The same is not true of the equity loan. Although it is being written off the books (the government will bank the value of the assets they now "own" to prevent the Help to Buy scheme affecting the bottom line), it remains the case that billions of pounds are going to be "invested" in an asset class with no return on investment at all. On top of that:

this aspect of the Help to Buy scheme will take effect as a subsidy, meaning in practice that non-participating taxpayers, in addition to paying for the loans, will have to work against them as the infusion of government liquidity increases competition for limited supplies of land.

That is, insofar as help to buy merely subsidises a particular group to buy rather than boosting building, it is zero-sum: renters who can't afford even the subsidised deposits will lose out. The hope is that increased building will offset that effect, but that hope is looking slim.

What could work instead? It's in the proposed solutions that the ASI becomes most noticeably libertarian; the fact that there is broad agreement that interventions need to be on the supply side does not mean that there's broad agreement about what those interventions should be. And so the report suggests:

Releasing limited amounts of farmland for suburban development… radical liberalisation of urban planning laws… and the abolition of mandatory affordable housing provision in new housing development.

Of those, the liberalisation of urban planning laws is the most likely to get widespread support: from maximum height restrictions to requirements for car parking, there are a number of regulations which prevent us from making the best use of inner-city space. But to the ASI's suggestions might be added a nationalised programme of housebuilding, either paid for with a land value tax or deficit funded as a stimulus measure, or major investment in public transport, opening up greater areas of the outskirts of cities to inner-city population density. The institute probably won't like those ideas as much, but even they might agree they are better than what we have at present.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

Photo: Getty
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No, the battle in Momentum isn't about young against old

Jon Lansman and his allies' narrative doesn't add up, argues Rida Vaquas.

If you examined the recent coverage around Momentum, you’d be forgiven for thinking that it was headed towards an acrimonious split, judging by the vitriol, paranoia and lurid accusations that have appeared online in the last couple days. You’d also be forgiven for thinking that this divide was between a Trotskyist old guard who can’t countenance new ways of working, and hip youngsters who are filled with idealism and better at memes. You might then be incredibly bemused as to how the Trotskyists Momentum was keen to deny existed over the summer have suddenly come to the brink of launching a ‘takeover bid’.

However these accounts, whatever intentions or frustrations that they are driven by, largely misrepresent the dispute within Momentum and what transpired at the now infamous National Committee meeting last Saturday.

In the first instance, ‘young people’ are by no means universally on the side of e-democracy as embodied by the MxV online platform, nor did all young people at the National Committee vote for Jon Lansman’s proposal which would make this platform the essential method of deciding Momentum policy.

Being on National Committee as the representative from Red Labour, I spoke in favour of a conference with delegates from local groups, believing this is the best way to ensure local groups are at the forefront of what we do as an organisation.

I was nineteen years old then. Unfortunately speaking and voting in favour of a delegates based conference has morphed me into a Trotskyist sectarian from the 1970s, aging me by over thirty years.

Moreover I was by no means the only young person in favour of this, Josie Runswick (LGBT+ representative) and the Scottish delegates Martyn Cook and Lauren Gilmour are all under thirty and all voted for a delegates based national conference. I say this to highlight that the caricature of an intergenerational war between the old and the new is precisely that: a caricature bearing little relation to a much more nuanced reality.

Furthermore, I believe that many people who voted for a delegates-based conference would be rather astounded to find themselves described as Trotskyists. I do not deny that there are Trotskyists on National Committee, nor do I deny that Trotskyists supported a delegates-based conference – that is an open position of theirs. What I do object is a characterisation of the 32 delegates who voted for a delegates-based conference as Trotskyists, or at best, gullible fools who’ve been taken in.  Many regional delegates were mandated by the people to whom they are accountable to support a national conference based on this democratic model, following broad and free political discussion within their regions. As thrilling as it might be to fantasise about a sinister plot driven by the shadow emperors of the hard Left against all that it is sensible and moderate in Momentum, the truth is rather more mundane. Jon Lansman and his supporters failed to convince people in local groups of the merits of his e-democracy proposal, and as a result lost the vote.

I do not think that Momentum is doomed to fail on account of the particular details of our internal structures, providing that there is democracy, accountability and grassroots participation embedded into it. I do not think Momentum is doomed to fail the moment Jon Lansman, however much respect I have for him, loses a vote. I do not even think Momentum is doomed to fail if Trotskyists are involved, or even win sometimes, if they make their case openly and convince others of their ideas in the structures available.

The existential threat that Momentum faces is none of these things, it is the propagation of a toxic and polarised political culture based on cliques and personal loyalties as opposed to genuine political discussion on how we can transform labour movement and transform society. It is a political culture in which those opposed to you in the organisation are treated as alien invaders hell-bent on destroying it, even when we’ve worked together to build it up, and we worked together before the Corbyn moment even happened. It is a political culture where members drag others through the mud, using the rhetoric of the Right that’s been used to attack all of us, on social and national media and lend their tacit support to witch hunts that saw thousands of Labour members and supporters barred from voting in the summer. It is ultimately a political culture in which our trust in each other and capacity to work together on is irreparably eroded.

We have a tremendous task facing us: to fight for a socialist alternative in a global context where far right populism is rapidly accruing victories; to fight for the Labour Party to win governmental power; to fight for a world in which working class people have the power to collectively change their lives and change the societies we live in. In short: there is an urgent need to get our act together. This will not be accomplished by sniping about ‘saboteurs’ but by debating the kind of politics we want clearly and openly, and then coming together to campaign from a grassroots level upwards.

Rida Vaquas is Red Labour Representative on Momentum National Committee.