As the world embarks upon what is no doubt set to be a turbulent financial year, the latest pomp and spin from the UK government is its poorly titled "Get Britain Building Fund".
The fund, announced and reiterated by top property government bod Grant Shapps, is set to stimulate the property market by getting all those unfinished properties finished off and onto the market by lending developers cash to get the job done.
420 million pounds will be thrown at the building industry in a bid to get unfinished projects back on course, with the proviso that the projects are completed by 2014 and the government is paid back.
What the press at large seem to have missed (and Mr Shapps too come to that), is why exactly these projects are left unfinished in the first place. Forgive my cynicism, but could it be they were priced incorrectly in the first place perhaps? Or planning regulations prevented anything getting done at any sensible rate? Could it be that the projects were started with the same mentality that has driven the mortgage market over the past few years – "house prices always rise, so bugger the cost and build away!"
I suspect most will be a combination of some or even all of the above which seriously begs the question why throw good money (that the government doesn't have and can't afford) in to a giant hole?
The whole idea is nearly as bad as trying to bail out a sinking battleship with a teaspoon, or perhaps a failing bank that lent out too much money, only to continue to get it wrong and hand out huge bonuses to its traders.
Even looking at the maths it doesn't make much sense: 420 million is being thrown at this latest ruse with the intended end result being 16,000 new properties – a cost to the government of 26k and change per property, which is expected to be paid back by the developers.
So, logic prevailing it pans out something like this:
- Builder starts project a few years ago when house prices are on the rise.
- Builder runs into trouble because of council delays.
- Building costs go up.
- Selling prices start to fall because the banks have lent out too much money, both to developers and the public.
- Builder thinks sod this – delays have caused costs to rise and selling prices are falling, so shuts down the development.
- Builder leaves site to decay until government notices and dishes out cash to make it look pretty again and uses it as a novelty gimmick to "rescue" the housing market.
- Builder gets a shed load of cash to do some work – meanwhile costs continue to rise and house prices continue to fall.
- Then (and this is where the really mind numbing futility of the whole exercise kicks in) the banks won't give a mortgage to anyone because they have no money and require too high a deposit on a property that was priced at peak levels and has had another 26k added on to it to pay back the government.
One day, someone will figure out at government level that it simply isn't possible to lend or borrow your way out of a recession.
Tip of the week – find an unfinished development and apply for a grant!
- Friday 06 January 2012