The housing market is in a right old state in the UK at the moment and try as they might, the comedy coalition government just don't seem to be able to get it right. Not that this is a particularly new feature of a UK government, or possibly any other government around the world, but at the moment – the raft of UK housing policies, ideas and suggestions is starting to get ridiculous.
The latest "idea" to hit the headlines again is the "NewBuy Housing Scheme"
Rather than bore everyone to death with the exact ins and outs, the premise is to have property developers put some cash aside, the government does the same, end result first time buyers don't need such a huge deposit.
Problem with said scheme as anyone who isn't in the banking or mortgage business has spotted is; almost instant negative equity is gained by the buyer as prices fall, the government is further exposing tax payers' cash to a falling property market, and the only people actually making any money are the banks in the form of more fees for yet another new fangled product that costs way more than it should.
Put simply, another one of Grant Shapps' "Bathtub Thinking" ideas that he is now having to defend with what can only be described as a "I disagree – but I don't know why" defence and then ramble on in the usual politician style to reference things that have nothing to do with the question at hand.
For example: Shapps' defence of the program
"A few commentators have argued that we shouldn't be backing mortgages in this way. I disagree. When I started my printing business 21 years ago, I got my break by taking up a Government backed Loan Guarantee. Without that initiative I would never have been able to start my print company, which in turn has created jobs to this very day."
Mr Shapps – please explain what your printing business has to do with your bosses using tax payers' money to prop up a market that has been fuelled by excessive lending and poor regulation?
Perhaps if the Government backed Loan Guarantee had not been around we might have a different housing minister – one that understood the housing market and the related industries?
Another fantastic quote in the defence of his own work;
"But building homes is also people intensive. As the snappily titled "Labour Needs of Extra Housing Input" by professor Michael Ball demonstrates – every home built creates 1.5 direct jobs and 3 more in the supply chain.
House building is also a major contributor to growth; £1 spent in construction generates £2.83 in the wider economy. So our Affordable Homes programme – now due to deliver 170,000 affordable homes, rather than the original 150,000 originally estimated – could add approximately significantly to GDP. As well as seeing 50,000 jobs created and safe-guarded on sites all around England, with even more established in the supply chain."
Building homes is an intensive business Grant – but you know as well as I do that in the real world in a recession, the first sector to be hit is construction – Your statistics might suggest otherwise of course, but we all know what can be done with a few numbers - you only need to look at how and why average house prices are calculated to work that one out.
House building a major contributor to growth? Well I would indeed concur on that point, IF YOU WERE USING MONEY THE GOVERNMENT HAD IN THE FIRST PLACE!!!!!
The reality is first, the cash "spending" is only theoretical because it's only allocated to the project in case there is a crash (i.e. the other Bathtub Thinking policies fail too); secondly, even if you were spending it, any profit would be counteracted by quantitative easing anyway; thirdly, what the hell does the term "could add approximately significantly to GDP" mean?
Bear in mind I started writing this late in the day yesterday, this morning the drivel adorning my news streams was that shadow housing minister Jack Dromey (yes, my first thought was "who?" too) has joined the debate on the NewBuy Housing scheme as well.
Traditionally, one would expect the opposition to rant on about how a policy won't work and its flaws and so on – but oh no, not Dromey – his outstanding contribution to the whole affair is to extend the NewBuy offering beyond just the new build sector (new build sales account for around 10% of mortgages at present).
Two outstanding responses from Dromey that really do begger belief;
"Responding to criticism that new-build homes instantly lose value when they are moved into - hence creating a risk of negative equity among those purchasing them - Mr Dromey said there is a risk but that "it will not be true in all cases""
Mr Dromey – If I sail a jewel encrusted pedalo near the coast of Somalia, there is a risk I will get boarded by pirates – not every time of course, but I think you get the picture.
Dromey went on to say;
"Having said that, borrowers need to be careful and lenders need to be responsible so we do not return to the dark days of widespread negative equity,"
Personally I doubt I have previously read one sentence that alone can provoke so much;
a) Borrowers need to be careful? According to the Telegraph and its' advertorial "news" we already have the HSBC suggesting that bad lending is actually the borrowers' fault
b) Lenders need to be responsible? Don't even start me on that one – was it not your party that ignored lending regulation for years and sold off the UK's gold at a car boot sale?
c) Return to the dark days of negative equity? Return? Wake up – you are there right now!
Perhaps it's just me, (it wouldn't be the first time I have had a rant on something that no-one else has until a fair while later) but in this case even top property folks in the UK have commented in quite some depth.
Jules Birch wrote an excellent piece highlighting how Shapps and Pickles wandered into a mine field with their poorly thought out policies and hoping to breeze through the announcements with a higher than usual press coverage as a result of some strategic leaking to the press.
Henry Pryor, (often seen on the tv for comment on the housing market) also wrote an extensive piece on how NewBuy has more holes than a worn-out fishing net and is nothing more than a weak prop for the housing market at the expense of the tax payer – benefitting no-one except those creating "clever mortgages"
The housing market is in a precarious place at the moment; the mortgage market is now a giant pit full of all things nasty, only hidden rather badly by government policies resulting from ill thought-out Bathtub Thinking moments. If NewBuy still seems like a good idea to you – get a job in banking or politics, you're made for it.
- Tuesday 20 March 2012