Say what you like about Help to Buy, but if economists in the future are ever looking for a case study of how to get a market addicted to a subsidy it has at least provided them with that.
From the off, in 2013, it was pointed out that if the problem is homes are too expensive, lending people 20 per cent of the price interest-free is unlikely to be a wise solution.
First-time buyer numbers have recovered nicely since then and more new homes have been built, but their price has risen, while quality has been criticised, housebuilders have cashed in and bosses have raked in bumper pay days.
This might have been acceptable if Britain had used the breathing space that Help to Buy had bought to fix its dysfunctional house-building market, yet a cursory glance at developers’ results reveals the opposite.
Most have a heavy dependence on the Help to Buy scheme for their sales – and if they were forced to go cold turkey, building would collapse.
Most devlopers have a heavy dependence on the Help to Buy scheme for their sales
Balanced against the barmy economics of Help to Buy, however, needs to be the personal element.
More than 220,000 home purchases have been made using Help to Buy and a large number of those people will care more about the fact that they are on the property ladder, often paying less in mortgage payments than they would in rent.
For all the stories you hear of people who are unhappy with their new-build homes, there are tens of thousands more who are quietly pleased they own their own place.
Those who put up the most spirited defence of Help to Buy will often point to this – saying that critics should zoom in and ask those who have bought whether they are happy that they got a leg-up onto the property ladder.
This week, however, a report by MPs into Help to Buy chose to zoom out instead and delivered what can only really be described as a damning verdict.
The Public Accounts Committee said that three-fifths of buyers who used Help to Buy could have bought a home anyway.
It also flagged that a scheme that was intended to be short-lived will now last for at least ten years and ‘consume over eight times its original budget, yet the value achieved from its extension is uncertain.’
The report said that Help to Buy may have lifted housebuilding by an estimated 14 per cent, but it didn’t make homes more affordable, or address other housing problems.
Meg Hillier, the committee chairwoman, said Help to Buy had ‘boosted the bottom line of house builders’ and will have tied up £29billion in cash by 2023.
Part of George Osborne’s plan with Help to Buy involved taking an equity stake that the government could eventually make money on
Part of former Chancellor George Osborne’s wheeze with Help to Buy was that eventually the government could make money on it, as rising house prices would raise the amount it was repaid on equity loans.
However, the committee called that into question too.
New build homes are sold as a premium product, but once someone moves in they lose the shine afforded from the promise of being the first to live there.
The committee put the new-build price premium at up to 20 per cent, while the ONS’s house price statistics show the average new build home costs £282,367 and the average second hand one £226,263.
In a market where house price rises are strong, losing the new-build premium when you sell up doesn’t matter so much, as property inflation helps you regain lost ground.
In a subdued property market, such as Britain’s current one that many forecast to persist, those selling their new-build within a few years may have to accept less than they paid for it.
This led Hillier to add: ‘The scheme exposes both the government and consumers to significant financial risks were house prices or interest rates to change. Better consumer protection needs to be built into similar schemes in the future.’
The committee said, if Help to Buy is to continue then its failings should be seriously considered and remedied.
The government also needs a plan to wean developers off their addiction to Help to Buy, unless we want to continue subsidising new home sales and big executive pay packets forever.
Should investors, entrepreneurs and buy-to-letters pay more tax?
Entrepreneurs and investors pay less tax on their profits to reflect the risk they take. That’s the principle that lies behind capital gains tax being lower than the rates charged on employment income.
But the influential think-tank, the Institute for Public Policy Research, wants to rip up that system and charge the same rate on gains from selling shares or property as income tax – and hack back the annual capital gains tax allowance to just £1,000.
On this podcast, Simon Lambert and Georgie Frost dig into the IPPR’s proposals and look at whether this is the kind of thing that could become a For the many not the few-style Labour party policy?