The problem with Help To Buy
Housebuilder Redrow just announced a record year according to Merryn Somerset Webb in MoneyWeek. The number of houses sold is up 9%. Revenues are up 16%. Pre-tax profits are up 21%. And the dividend payment to the firms shareholders is up 65%. The chairman and founder, Steve Morgan is pleased and keen for this fabulous run to continue, so he has an idea. He'd like the Help To Buy scheme under which the government underwites 20% of the purchase cost of a new build home to continue forever. "If it aint broke" he says, "Why fix it?".
He has a point, H2B works brilliantly for housebuilders. 30% of Redrows sales last year relied on it which is typical across the industry. Without it, the sales number would probably be lower. But H2B doesn't just help housebuilders shift stock, it helps them shift it at high prices. After all, anyone effectively getting an extra 20% worth of loan from the state can clearly pay more than someone who isn't. Probably explains why Redrows profits are growing faster than their revenues. This government driven house price inflation is no different to the 'rent inflation' which has been caused by Housing Benefit. That to some extent, stopped when LHA was uncoupled from inflation - but it still underpins the market and sustains higher rents than would otherwise be asked (and thus higher house prices as the yield justifies it). Interesting as H2B was originally setup to solve the problem of high house prices.
H2B has instead stoked demand for hideously low-quality identikit houses, pushed up prices across the board (the average house price is up 30% since it was introduced), helped the well-off trade up at the expense of the taxpayer (32,000 H2B buyers have used it to climb rather than get on the property ladder) and lined the pockets of housebuilders and their shareholders.
The policy may be popular (as economically illiterate things often are) but given the misery it is causing and the state resources it is wasting (£9Bn and counting according to Simon French in The Times), the governments review of it should not take long.
If they look at this bonkers policy from an economic perspective rather than a political one, they will see that if they ever want the UK to have a slightly less dysfunctional property market, then it is long past time for H2B to go.