We've never been big fans of "Help to Buy".
My colleague Merryn Somerset Webb wrote scathingly about the housebuilder subsidy scheme's myriad failings earlier this year.
And now the official verdict is in.
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Help to Buy artificially propped up house prices
Help to Buy was the brainchild of George Osborne. It's been through various incarnations, but to cut a long story short, it allows home buyers to put down a 5% deposit on a new-build house, then borrow money from the taxpayer to boost the size of the deposit, thus getting access to lower mortgage rates.
Since it was introduced in 2013, around about £12bn has been lent to buyers. From 2021, it will be restricted to first-time buyers, and it will lapse in 2023.
Clearly, Help to Buy was politically motivated. It was aimed along with the changes to buy-to-let taxation squarely at frustrated first-time buyers.
The UK's attachment to home ownership is such that there is almost no price that is deemed to represent poor value for a home. As long as you can afford the monthly payment, that's all you need to know.
Thus it's not seen as ridiculous that the government should be using taxpayer money to subsidise the private purchase of a privately-owned good.
Rather than do the hard work of figuring out why the market is failing to provide sufficient quantities of a good that is clearly in high demand, the government preferred to take a short cut and add fuel to the fire.
Don't just take my no doubt biased word for it. Here's the view from the boss of one of the biggest beneficiaries of the scheme Pete Redfern, chief executive of housebuilder Taylor Wimpey.
Help to Buy, Redfern tells the FT, caused prices to rise by about 4%-5%, and it also "brought forward price growth significantly." As a result, he reckons that prices peaked earlier than they otherwise would have (hence the current slowdown).
As Redfern tells the FT, in what should be a statement of the blindingly obvious: "If you make it easier for people to buy something, you have an impact on pricing, unless that this is unconstrained, which is clearly not true of housing."
It's both refreshing to hear and good to know that the people who run housebuilders (or at least this particular person) actually understand what drives house prices.
As long as the supply of money, credit, and subsidies available to buy housing is rising, prices will rise too. It's simply not possible for supply to keep up.
The legacy of Help to Buy
All of these things were obvious both before and during the scheme's ongoing lifespan. None of this was hard to spot. Now the National Audit Office (NAO) has come out with a progress report.
The NAO argues that the scheme has achieved its short-term goals: more people have bought houses and house builders have apparently built more houses than they otherwise would have.
But if you look at the details, you have to acknowledge that the critics' objections were spot on.
Firstly, nearly two-thirds of the people who used the scheme didn't need it (according to the individuals' own estimates). They could have bought their homes without it, or they could have bought a cheaper home. They just paid over the odds because the government tossed them extra taxpayer money on top of their existing spending power.
Secondly, it's left the taxpayer on the hook and exposed to falling house prices. Which is a bit of a problem, given that Help to Buy artificially inflated prices in the first place. Not to mention the fact that this has also tied up a chunk of public money that could be used elsewhere.
Thirdly, it's left the buyers exposed to negative equity. New-build houses typically cost 15%-20% more than "second-hand" houses. So there's a good chance that a lot of them will be underwater when they come to sell.
Now, the NAO disagrees with the idea that Help to Buy has inflated values. I'm just going to point to the quote from the housebuilder above and agree to disagree on this score.
I'd suggest that Help to Buy users have almost certainly paid more than they would have in a market which lacks Help to Buy, which bodes ill for what might happen when the scheme ends in 2023.
Oh, and it's worth noting that the administration linked to collecting interest on the taxpayer loans once the five-year interest-free period is up, has been more complicated (thus presumably more expensive) than expected, and already one in 20 of the homeowners is behind on paying the interest.
Who benefited? Housebuilders. They got to sell more stuff at higher prices than they otherwise would. That's it, really.
So what's next? I'd like to think that the government would try to wind down the scheme. But it's such an emotive subject and such a politicised area that I wouldn't be surprised to see an equally stupid scheme being launched in the future.
Equally, I wouldn't take that as a cue to invest in housebuilders. Amid the future outcry from people plunged into negative equity and taxpayers counting their losses, the one thing that any government is likely to attempt to do is to make sure that builders don't get to keep the profits from any future schemes.
The risk is that housebuilding eventually turns into a regulated utility, as we give up the pretence that residential housing is anything like a functioning free market. One more reason for investors to steer clear.
John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
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