Last month, George Osborne came up with a silly idea the help-to-buy Isa. These would allow hopeful first-time buyers to save up to £200 a month into a special account. Taxpayers would top that up by 25% (so every £200 becomes £250) to a total of £15,000. The money would then be used as a house deposit.
I can see how this might look reasonable. The young are having trouble saving for houses. This gives them a helping hand along the painful path to the great British dream homeownership. But it isn't reasonable at all. The core problem is that houses are too expensive. And they are too expensive because the market has been fiddled with by governments for decades.
We have, as MoneyWeek columnist Matthew Lynn puts it, seen hidden subsidies added to distorting policies and rules and regulations piled on top of each other until their original purpose is long lost. Every bad housing policy has side effects (mostly rising prices). And every side effect is met with another bad policy (mostly to help people pay those prices, pushing them even higher). The ludicrous electoral bribe of the help-to-buy Isa is an obvious example.
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It never occurred to me, when listening to Osborne talking about his new Isa, thatthere was an idiot out there who couldmake the policy worse. But there is.Ed Miliband has said that, should he end up as PM, help-to-buy Isas won't be abandoned. Instead, the funds saved into them will be funnelled into a £5bn Future Homes Fund to finance the building of 25,000 houses a year for five years. Again, you might think this sensible: pretty much everyone is calling for a house-building boom on the scale of the one we saw in the 1930s. Again, it isn't. There are endless problems with Miliband's idea from the fact that 25,000 is a drop in the ocean, to the foolishness of funding long-term projects with short-term capital.
But the key point is that the 1930s building boom was driven by something we just don't have today: affordability. In the 1930s, when land prices were low, the average new house came in at about £500. A blue-collar worker made about £150 a year. That made houses affordable and a building boom inevitable. If lots of people want your products, and can afford them, you make more of those products. We don't need a building boom to drive affordability. We need affordability to drive a building boom.
How can we make that happen? Dump the subsidies; sort out planning regulations; equalise the tax treatment of all residential property; and bring the era of artificially low interest rates to an end. That would give us the beginnings of a free market in property and, I think, falling prices. I don't expect anyone to promise anything like this but if at least one politician looked like they understood the problem, I think we would all find voting in May a good deal easier.
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