Comment: Help to Buy will betray a generation
By Phil Scullion
The government's controversial extension of Help to Buy has arrived three months early – and it's short-term politics at its ugliest.
If you're a first-time buyer, you're supposed to be rejoicing. David Cameron and co are here to support you if you want a 95% mortgage on a property worth up to £600,000.
Despite the appealing soundbites, this scheme is politics dressed up as an olive branch to those struggling to purchase their first home.
The clue was in the language the prime minister used when announcing the policy on BBC1's The Andrew Marr Show.
"I am not going to stand by while people's aspirations to get on the housing ladder are being trashed," he explained.
"If we don't do this it will only be people with rich parents to help them who can get on the housing ladder – that is not fair, it is not right."
The problem is that what Cameron says has an element of truth, which is why Help To Buy is such a pernicious sleight of hand.
His reasoning is sound. It is outrageous that successful young people with good jobs and prospects cannot get themselves on the housing ladder via their own hard toil.
The latest estimates from housing charity Shelter are that a couple would need to save for six years to build up a deposit, or eleven if they happen to live in London. If you're single you may as well just give up – those figures are more than doubled. And despite the economic crisis, the long-term trend is upward.
On the face of it Help To Buy will solve this problem. It'll cut the amount of time people need to save to get a deposit together as they will only require five per cent of the value of the home they wish to purchase.
Unfortunately, though, this is merely a case of clever accounting. By adopting the scheme Cameron and his chancellor George Osborne have kicked the problem into the long grass, making it an issue for a future government.
To explain why that is, it's worth delving a little more into the facts of the scheme and the state of the market.
Help To Buy first launched in April – allowing 95% mortgages on new-build properties, via an equity loan which is interest-free for the first five years.
That actually made quite a bit of sense, because by focussing on new-builds it acknowledged the major problem in the housing market – a lack of supply.
It doesn't take an economist to understand that if you don't build enough homes, demand will force the price of those homes you already have up and out of reach of the average first-time buyer.
"We are building less than half the homes a year we need to meet demand, while millions of families are priced out of the housing market and struggle to keep on top of their rents," said National Housing Federation chief executive David Orr last year.
And house completions fell nine per cent in the 12 months to June 2013, according to the Office for National Statistics, making a mockery of the government's claims to be boosting house building.
"These are not signs of a well-functioning housing market," said Abigail Davies, assistant director of policy and practice at the Chartered Institute of Housing.
Despite these supply problems the property market has seen a turnaround in fortunes over the last few months, with all the major house price indices showing increases. House prices are up by roughly five per cent (although the figures are skewed towards London and the South).
Confidence is returning to the property industry – and it's virtually guaranteed that Help To Buy will provide a further boost.
You'd think, then, that all is rosy. First-time buyers can get on the ladder via five per cent mortgages and Conservative voters in expensive Surrey houses can go back to seeing the value of their asset double every decade. Everybody wins.
However underneath the promotional gloss that isn't the case, because the problem of supply has not been fixed. House builders continue to fall far short of targets, fully aware that if they construct too many homes they will struggle to achieve the prices they want.
The market is recovering because the government is helping people to borrow the huge sums needed to get on the housing ladder, through Help To Buy and the overarching Funding for Lending scheme. This is coupled with the Bank of England's low interest rates, which are leading to cheap and appealing mortgage deals.
But the boom is false and unsustainable. As many Conservatives will tell you, you can't meddle with the market. The government's actions may well help this generation of first-time buyers, but in the process they will betray the next.
When the economy recovers mortgage rates will rise. Then at some stage in the future there will come a tipping point when even the deposit on a 95% mortgage is out of reach of the average person. If there's anything history has taught us about a 'healthy' British property market it's that house prices will increase quicker than average earnings, making this tipping point inevitable.
What then? Will it be three per cent mortgages? Two per cent? Luckily for David Cameron he almost certainly won't be around to deal with that problem.
Therefore it's no surprise that coming up with creative policies to increase housing supply is not top of Cameron's agenda; instead he prefers to deal in empty words and promises to "get Britain building".
The effect of increased supply would be stagnant house prices in some areas and a drop to a level people could afford in others. How to deliver that supply would be particularly challenging in London, where the problem is most acute.
But sorting out such issues is not politically convenient for Cameron, especially as many traditional Conservative voters in the south have had most to gain from runaway house prices over the last 30 years.
Amidst all the talk from the government about "taking the medicine" and using market principles to fix the economy, it seems a head in the sand approach is the order of the day when it comes to housing.
The classic political conundrum exists here: the easiest way to stop a voter from supporting you is to make them poorer than they were under the previous administration, while the best way to gain a vote is to make someone richer. Addressing the housing crisis would leave a lot of people proportionately poorer, as it would bring house prices back in line with reality. This makes any solution political suicide in the short term.
Lurking dangerously though is the possibility that the market could fix the problem for us. Japan suffered a hugely painful and unannounced market-led crash in house prices during the 1990s, while 23.1% of all homes in the United States were in negative equity at the end of 2010.
For all his talk of "not wanting to live in a country where aspirations are trashed" and where only "rich parents" can get you on the property ladder, his actions make it crystal clear that David Cameron is not the courageous and selfless politician to step up and solve the housing crisis.
"Today the average family can't afford the average house," said the prime minister. Unfortunately with policies like Help to Buy, it'll be exactly the same tomorrow too.
Phil Scullion is editor of AboutProperty.co.uk and political analyst at the London Economic.
The opinions in politics.co.uk's Comment and Analysis section are those of the author and are no reflection of the views of the website or its owners.
