Help to Buy will ruin the housing market by improving affordability for scheme members but reducing it for everybody else.
British housing already costs well above the historical average, and the equity loan and mortgage guarantee schemes will worsen rather than improve that, according to a new report by the Adam Smith Institute, Burning down the house.
By boosting house prices it will raise the height of all the rungs of the housing ladder, and redistribute wealth from taxpayers to house buyers.
This is both regressive, and exposes taxpayers to possible losses on every equity loan in the first six years of existence, with no guarantee of a return thereafter, the report said.
It also creates "significant contingent liabilities" for the British taxpayer, who will make a loss on every equity loan in the first five years, with no guarantee of a return thereafter.
The Adam Smith Institute said liberalisation of the planning laws and the abolition of mandatory affordable housing in new developments would do more to solve the affordability problem and housing crisis, without any support from the public purse.
According to Shelter, British accommodation is among the most expensive in Europe, with prices rising 4,300% in the last 40 years. If the price of food had risen at a comparable rate over the same period, buying a whole chicken at a supermarket would today cost £51.18.
Across England, the average house cost 3.54 times the median ways in 1997, but that had risen to more than 6.65 times in today, the report said.
In London, where property values are already 5.7% above their pre-crisis peak according to official statistics, the affordability problem is still worse.
Other economists are more relaxed about the impact of Help to Buy. Ruth Lea, economic adviser to the Arbuthnot Banking Group, said: "GDP is still more than 3% down on Q1 2008 and, despite some comments to the contrary, activity in the housing market is still far from unsustainable boom conditions. If/when the housing market moves nearer to undesirable boom conditions, the Governor has recently stated that the Bank of England will be ready to pop any emerging price bubbles.”
Comments
The scheme will also be impossible to close down. Finishing it will require policy which will, at least in the short-term, reduce house prices. No government will do this.
"By boosting house prices it will raise the height of all the rungs of the housing ladder, and redistribute wealth from taxpayers to house buyers."
No, it distributes wealth from taxpayers to home / land owners house builders and banks, by inflating asset values. Anyone using this scheme is already paying an inflated price to do so.