Why the government must stop meddling in the property market
The government has come up with plenty of wheezes for making homes affordable. It’s time to try the radical alternative, says Matthew Lynn – just leave things alone, step back and watch the improvement.
Rishi Sunak has a new wheeze for making homes affordable again. On Monday, the government launched a new guaranteed mortgage scheme. Anyone borrowing up to £600,000 will be able to get a 95% loan, with the state backing a slice of that to allow banks and building societies to increase the amount they lend without having to worry about defaults.
In fairness, it’s not a completely crazy idea. Raising the deposit for the first property is often the hardest task for anyone getting on the property ladder, especially if they don’t have any help from their parents. If they only have to save 5%, then with £15,000 they can purchase a £300,000 home. Once that is completed, it will get a lot easier to buy the next one. With interest rates so low, and unemployment under control, it is unlikely to end up costing the government much: a guarantee only matters if people start to default, and there is not much sign of that happening. But there’s a problem.
Pouring petrol on a housing boom
Prices are already very frothy. According to Rightmove, the average asking price for a home in the UK has risen to an all-time high of £327,000. It has risen by 2.1%, or £6,700, in the last month alone. Just as significantly, the number of homes on the market has dropped to a two-year low, while a quarter of properties are selling within one week of coming onto the market. In other words, the market is pumped up, boosted by a resilient economy, breaks on stamp duty, low interest rates and lots of cheap fixed-rate mortgage deals. It is not the time to be throwing subsidised money at the market. It is just going to create a bubble.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Perhaps more importantly, the entire property market is in a state of rapid flux. The Covid-19 crisis has accelerated changes to the way we use space by a decade or more. In January, the percentage of shopping done online hit 36%, double what it had been a year earlier. That may fall back a little as lockdown is eased, but retailing is not likely to return in anything like the same form.
The government is already relaxing planning restrictions so that many former high streets can be turned into a mixture of leisure and residential space, with the result that a lot more apartments are going to become available as old shops get converted. It may not be long before the retail parks go the same way. We may not like the idea of living in a B&Q shed right now, but a generation ago we would have said the same thing about a warehouse along the Thames: apartments in what were once industrial buildings now change hands at £1m a time.
Lots of skyscrapers are suddenly going to be half-empty, too – Canary Wharf is already looking to switch one planned office block into apartments instead, and is working out how to turn a place where people just work into somewhere they live and have fun too. Other landlords and property companies will be reaching the same conclusion.
There is nothing wrong with that. For years, the UK has not built enough new homes, and the ones we have built are not as big as they should be (and if everyone is working from home two or three days a week they will need more space). We may finally be about to see a vast new amount of residential space coming onto the market as shops and offices get converted, and that will change the market completely, and in ways that no one can predict right now.
A bewildering merry-go-round
The government needs to let these trends work themselves out. Chancellors have been coming up with schemes for housing for 30 years. Stamp duty has gone up, then down again. Help-to-buy wheezes have been and gone. Landlords have been helped with tax breaks, then whacked over the head. Mortgages have been subsidised, punished, controlled, and then liberalised all over again. It has been a bewildering merry-go-round, none of which appears to have done much good. Right now, the market is already booming, and the way we use the land and buildings available to us is changing very quickly. The government should try something genuinely radical – leaving the market alone, and seeing if it can improve all by itself.
Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
-
Revealed: the best funds to buy before the end of the tax year
Looking to add more investments to your portfolio but not sure where to start? We reveal the best funds to buy now as the end of the tax year edges closer.
By Katie Williams Published
-
4 tax tips for the Bank of Mum and Dad before the end of the tax year
Parents and grandparents wishing to gift money in a tax-efficient way need to be aware of the looming 5 April end-of-tax year deadline. Here are our tips to beat the deadline.
By Ruth Emery Published
-
What to consider before investing in small-cap indexes
Small-cap index trackers show why your choice of benchmark can make a large difference to long-term returns
By Cris Sholto Heaton Published
-
Why space investments are the way to go for investors
Space investments will change our world beyond recognition, UK investors should take note
By Merryn Somerset Webb Published
-
Time to tap into Africa’s mobile money boom
Favourable demographics have put Africa on the path to growth when it comes to mobile money and digital banking
By Rupert Hargreaves Published
-
M&S is back in fashion: but how long can this success last?
M&S has exceeded expectations in the past few years, but can it keep up the momentum?
By Rupert Hargreaves Published
-
The end of China’s boom
Like the US, China too got fat on fake money. Now, China's doom is not far away.
By Bill Bonner Published
-
Magic mushrooms — an investment boom or doom?
Investing in these promising medical developments might see you embark on the trip of a lifetime.
By Bruce Packard Published
-
What pension providers don't tell you about your retirement money
Check the small print from your pension provider or risk losing thousands.
By Merryn Somerset Webb Published
-
Should you invest in sector funds?
Sector funds can be a useful way to fine-tune a portfolio or track a theme, but check what the index holds.
By Cris Sholto Heaton Published