Property Roulette: The Government’s Pursues a Losing Strategy

12 March 2012

If you ever needed reminding that government is a series of swings and roundabouts ensuring that what you gain on one you lose on the other, consider the coalition’s plans for something called the NewBuy Guarantee. This project is designed to assist househunters by providing 95% mortgages for houses costing as much as £500,000. The government says it will help 100,000 families onto the "property ladder".

In itself, this is not an ignoble aim, though as always one is struck by the fact that the response to a period in which banks and building societies leant too recklessly is to ask them to lend more recklessly than they presently consider prudent. Certainly, times are tough for some people anxious to start purchasing property; it is their bad luck to do so at this particular time. 

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But the biggest problem, surely, is that house prices remain too high. Or, that is, higher than might be thought optimal. Especially, though not exclusively in the south-east of England, many families are essentially priced out of the market. It is hard to see how a government intervention that bolsters house prices can help resolve the problems caused by this unhappy state of affairs.

True, falling house prices bring their own problems but a certain rebalancing – to use a word much in vogue these days – of the property market remains overdue. But that cannot happen while the supply of new housing remains relatively limited. Which means more, not less, development is required and, especially in London, denser development. Which in turn means building up not out.

At present, however, the government is tinkering and intervening rather than letting the laws of supply and demand take their natural course. It is doing so, mind you, in pursuit of mutually exclusive goal: lowering prices and increasing mortgage availability for some buyers while not reducing prices for existing mortgage-owners. The government is attempting to win by simultaneuously betting on black and red; experience suggests that this is not a policy likely to produce any great profit.

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  • Fleurie

    I think this measure is not going far enough. I agree the property prices are still far to high and haven’t come down to more realistic levels in a buyers’ market. They are introducing all of these incentives, HomeBuy schemes, First Steps, stamp duty tax freezes and now NewBuy. I bought my house through and I managed to find a number of house builders who were offering the schemes, and some were offering other help to buyers. If the Govt really want to kickstart the property market, why don’t they throw everything at it, i.e. NewBuy, HomeBuy, Shared ownership schemes, waiving of stamp duty and legal fees. They are not showing the level of committment, and these half-hearted measures will not add up to anything much.

  • Kittler

    WTF, is this socialism or crony capitalism to bail out developers. It’s not the free market.
    And is £500,000 the first rung of the property ladder?

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