Interesting Times

The government’s latest announcements are sounding increasingly like NuLab Lite: government to intervene in markets, to pick winners and losers, to pour other people’s money into selected places.  Selected by whom?  You can be sure the job of administering pots of public money like that will be a magnet for corruption!

  • Taxpayer to pour yet more money into housing (and the debt bubble) by underwriting banks losses on big mortgages.
  • Slush fund for lending to small businesses.

On a more positive note, I expect that they’re taking another leaf out of NuLab’s book, and that some of these announcements will lead to very, very little action.  Let us hope!

But something more interesting is happening.  Instead of the mainstream media cheerleading all these interventions, they’ve united to rubbish them.  Across the political spectrum, we have a remarkable degree of agreement:

Ian Cowie in the Telegraph (political right): You really could not make it up. Government proposals for taxpayers to underwrite looser mortgage lending for first time buyers may help buy-to-let landlords exit the housing market with handsome profits before house prices fall further. But they are unlikely to be of lasting benefit to anyone encouraged to take on excessive debt before interest rates rise from their current historic low and more homebuyers find themselves in negative equity.

Mary Ann Sieghart in the Independent (political centre-left): The one thing missing from today’s housing strategy will be an outright acknowledgment that lower house prices would be a good thing. It’s still too much of a political taboo. But ministers know that it’s exactly what the younger generation need. So do prospective buyers and their parents.

Matt Griffith in the Guardian (political left): While some of the initiatives – notably the government’s pledge to provide insurance for mortgages to new-build properties – are the equivalent of an intergenerational mugging: the state underwrites young people taking on a huge debt for an asset that is clearly overvalued.

Andrew Ellison in the Times (political right): A strange conspiracy maintains the high cost of homes – hence these weird schemes to help the first-time buyer.

James Saft at Reuters: Under the plan both builders and the government would contribute funds to partially indemnify lenders against what I am betting are the inevitable losses. Borrowers, who are almost by definition younger and less well off, will still bear all losses, but will be rewarded with the chance to take out the kind of loan which has proven time and again to be a bad idea.

Wow!  They really are all singing from the same hymn sheet.  Just a shame they took so long to notice the problem!  Evidently this blog was ahead of its time, for example in August 2007:  … the taxpayer money going into this helps inflate the price of anything nice, by lifting the market in general.

Eventually perhaps they’ll put the final pieces of the picture of overpriced housing together:  If chickens can’t come home to roost now for property millionaires and bankers, we’re transferring yet more burden onto the productive economy.  And that’s tilted towards the young (because fewer of them own property) and high-earners (who pay more tax).  That’s precisely the people who will be most welcome in other countries, when the burden of subsidising our fat-cats gets too much for them.   If we drive too many of them out, the economy is basically gone!

Posted on November 27, 2011, in house prices, media, news, politics, uk. Bookmark the permalink. 4 Comments.

  1. You hit so many key points in this post! It’s good to see a post that screams awareness…Thank you.

  2. I actually think the mortgage plans are worse than labour, as they were trying to do some capital expenditure (schools) -it was the PFI bits that were mortgaged out. In all the discussions on the radio about 1st time buyers, nobody raised the fact that the reason there may be so few is not only that current prices are massively overvalued, but because of the high unemployment rates of the under 25s. If you don’t have a job, you don’t shop for a house you can never pay off.

  3. Clearly the government is assuming that in the medium term, renewed inflation is going to erode the debts and bring house prices down in real terms, without them having to fall in money terms.

    I hope they’ve had the foresight to put in place measures that will actually increaes inflation, because it’s now clear that “quantitative easing” isn’t enough to do the job. It’s about demand. Right now, when the gov’t prints more money, the banks just keep it, which doesn’t do anything for the economy or inflation. They need to print the money and give, not “lend”, it to people who’ll spend it.

  4. Steve, it’s really just the same as some of Labour’s schemes: key worker, shared ownership, homebuy direct, for example. My calling it nulab-lite is perhaps overgenerous, but I think it’s less damaging than the original because it’s not happening in an environment of high house price inflation.

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