Work & pensions secretary Ian Duncan Smith: the man with the plan. Image: Getty.
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So Iain Duncan Smith is setting housing policy now? God help us all

Five reasons why Iain Duncan Smith's plan to give free houses to those who come off benefits is a terrible policy. 

Oh, Iain Duncan Smith. Is there any other individual, anywhere in politics, who has such a talent for looking thoughtfully at a problem, giving it long consideration, and then coming up with a solution that is quite so catastrophically wrong?

Today the Times splashed on a story outlining the exciting new idea that IDS is pushing to include in this year's Tory manifesto. It would boost home ownership, incentivise people to move from welfare to work, and make working class voters less likely to defect to UKIP. The party’s leadership is said to be smiling on the plan. Here it is in a sentence:

Free council houses for recent benefit claimants.

Yep. From the Times:

Millions of houses would be “given away” to low-paid workers under Tory plans to reward people who come off benefits.

Iain Duncan Smith, the work and pensions secretary, is pushing for a pledge to “gift” tenants their council home after a year in work to be included in the Tory manifesto.

If this doesn't immediately leap out at you as a good idea, that's because it's not. It's awful. How is it awful? Let me count the ways.

 

1) It misunderstands the reason people are out of work.

Let's assume, for the sake of argument, that there are people who don’t claim unemployment benefit because they can’t find a job, but do so instead as an economically rational choice; people who have decided that their time is worth more to them then the wages available. These are the people who might be open to a great big house-shaped bribe to get back into work.

How many of these people do you imagine there are? And can it really be a large enough number to justify the fact that . . .

 

2) It eats yet further into Britain's scarce social housing stock

There are 1.7m people on the waiting list for social housing – people who would like one of these homes but can’t get one.

This policy does nothing for them. No, that’s not fair, it actually makes their situation worse, because it means there will be less social housing available to go round. Well done there.

What’s more . . .

 

3) It loses the taxpayer money

. . . for the very simple reason that, if you give away some sweets, then those are some sweets that you no longer have.

Iain Duncan Smith seems to think the reduction in housing benefit would help a bit to offset the cost of this scheme. And there is talk of a clawback: sell your free house within three years, you’ll pay 35 per cent of the proceeds in tax, that sort of thing. But the policy seems to assume the tax will fall as a proportion of sale price over time, and, anyway, that money won't be available for years. It’s almost certainly a net loss to the state.

Worst of all, a fairly hefty contributor to high house prices is high land prices, which pushes up the price of building replacement housing, too. So that 35 per cent clawback is extremely unlikely to be enough to fund replacement housing. And since the reason we have a housing crisis is that we don’t have enough houses, handing them out as electoral bribes is probably not a very good policy.

That's assuming that the bribery would work of course, which . . 

 

4) It's politically suicidal

. . . it won't. Approximately 17 per cent of households in England and Wales live in social housing; that’s around 4.1m of them. That, in the most optimistic assessment, is the maximum proportion of households who would stand to benefit from this policy.

Now consider how many people would instead be outraged by IDS’s plan. They include those in private rented accommodation, many of whom have been saving for years but can't get on the ladder; anyone sitting on a vast mortgage; and anyone who's drunk the Daily Mail kool-aid, and who now thinks that benefit claimants and social housing residents get a far too cushy time already.

I wouldn't want to hazard a guess of how many people there are on this second list. But since there are 4.2m households in the private rental sector alone, I think we can safely say it's more than on the first list.

Oh, and:

 

5) The government doesn't own many of these homes in the first place

Nearly half of them (1.9m) are instead owned by housing associations. These are charities, whose mission is to provide homes. Many of them have borrowed a fortune to build homes to help them fulfil this mission.

Even assuming that the government can force these charities to hand their assets out to their tenants, many will then be left with enormous holes in their balance sheets. So that will make building the homes Britain needs a whole lot harder, too.

***

Need I go on? This policy is economically, financially, politically and institutionally illiterate, and it'll make the housing crisis worse. So why the enthusiasm from the Tory front bench?

The answer, I suspect, can be found in the other policy currently under consideration: an extension of the right to buy to housing association stock. That also runs headlong into point five above, but it also shows quite how badly the Conservative leadership is still trying to relive the 1980s.

The party wants to increase home ownership, which is lovely of them. But they seem to think that the main the barrier to doing so is an over-mighty social housing sector. Break that, the argument goes, and you get more home owners and more Tories. After all, it worked for Margaret Thatcher.

But it won't work now – because the real reason home ownership rates are falling is rising house prices, and the main force behind that is we are not building enough houses in the places people want to live.

Yet the Tory party remains oblivious to this. Instead, it's shuffling assets around, ignoring the fact its policies will contribute directly to the decline of home ownership, and probably a concomitant decline in the number of potential Tory voters, too.

The Conservatives were once the natural party of government. Today they're a pale Margaret Thatcher tribute act, constitutionally incapable of examining why they can’t get a thumping great majority any more.

And Iain Duncan Smith is setting housing policy. God help us all.

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.

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I was wrong about Help to Buy - but I'm still glad it's gone

As a mortgage journalist in 2013, I was deeply sceptical of the guarantee scheme. 

If you just read the headlines about Help to Buy, you could be under the impression that Theresa May has just axed an important scheme for first-time buyers. If you're on the left, you might conclude that she is on a mission to make life worse for ordinary working people. If you just enjoy blue-on-blue action, it's a swipe at the Chancellor she sacked, George Osborne.

Except it's none of those things. Help to Buy mortgage guarantee scheme is a policy that actually worked pretty well - despite the concerns of financial journalists including me - and has served its purpose.

When Osborne first announced Help to Buy in 2013, it was controversial. Mortgage journalists, such as I was at the time, were still mopping up news from the financial crisis. We were still writing up reports about the toxic loan books that had brought the banks crashing down. The idea of the Government promising to bail out mortgage borrowers seemed the height of recklessness.

But the Government always intended Help to Buy mortgage guarantee to act as a stimulus, not a long-term solution. From the beginning, it had an end date - 31 December 2016. The idea was to encourage big banks to start lending again.

So far, the record of Help to Buy has been pretty good. A first-time buyer in 2013 with a 5 per cent deposit had 56 mortgage products to choose from - not much when you consider some of those products would have been ridiculously expensive or would come with many strings attached. By 2016, according to Moneyfacts, first-time buyers had 271 products to choose from, nearly a five-fold increase

Over the same period, financial regulators have introduced much tougher mortgage affordability rules. First-time buyers can be expected to be interrogated about their income, their little luxuries and how they would cope if interest rates rose (contrary to our expectations in 2013, the Bank of England base rate has actually fallen). 

A criticism that still rings true, however, is that the mortgage guarantee scheme only helps boost demand for properties, while doing nothing about the lack of housing supply. Unlike its sister scheme, the Help to Buy equity loan scheme, there is no incentive for property companies to build more homes. According to FullFact, there were just 112,000 homes being built in England and Wales in 2010. By 2015, that had increased, but only to a mere 149,000.

This lack of supply helps to prop up house prices - one of the factors making it so difficult to get on the housing ladder in the first place. In July, the average house price in England was £233,000. This means a first-time buyer with a 5 per cent deposit of £11,650 would still need to be earning nearly £50,000 to meet most mortgage affordability criteria. In other words, the Help to Buy mortgage guarantee is targeted squarely at the middle class.

The Government plans to maintain the Help to Buy equity loan scheme, which is restricted to new builds, and the Help to Buy ISA, which rewards savers at a time of low interest rates. As for Help to Buy mortgage guarantee, the scheme may be dead, but so long as high street banks are offering 95 per cent mortgages, its effects are still with us.