Gordon Brown’s autumn economic relaunch to restore his authority has proved as overhyped as Hurricane Gustav, said Ann Treneman in The Times. Alistair Darling’s candid admission at the weekend that economic conditions were “arguably the worst they’ve been in 60 years” caused the pound to slide to a two-and-a half year low against the dollar, while grim data has continued to pile up. A gauge of the services sector has now registered a decline for four months in a row, the number of permanent jobs available is at a seven-year low and the OECD stole headlines this week by becoming the first international body to warn that the UK is sliding into recession.
The OECD overshadowed the launch of Government measures to prop up the housing market: a one-year stamp duty holiday for homes worth up to £175,000; a shared equity scheme, whereby first-time buyers with an income up to £60,000 will be eligible for a loan of up to 30% of the property’s value, free for up to five years; and money for councils to alleviate the plight of those facing repossession. The political impact of the initiative was blunted by the fact that the Government has yet to say how it will be funded.
The Government can’t help the housing market…
The measures were widely dismissed as being as useful as “a chocolate fireguard”, as Damian Reece put it in The Daily Telegraph. To put this package in context, said Hamish McRae in The Independent, consider that it is worth £1bn-£2bn, while the value of Britain’s housing stock is shrinking by around £1bn a day. What’s more, the key problem on the housing demand front is the drying-up of lending, said Reece, and despite lenders having raised £200bn from the Bank of England’s Special Liquidity Scheme the mortgage market still hasn’t got going.
As far as the stamp duty saving is concerned, the maximum saving is £1,750, which is hardly going to stimulate buying when prices are falling by around £2,000 a month and widely predicted to slide much further. As for the scheme to get first-time buyers on the ladder, which will only apply to 10,000 households, “it looks more like a sop to overstretched construction firms”, said The Independent. It hardly makes sense to buy a home entirely on credit when prices are falling.
…and shouldn’t be trying to
Given the size of housing markets, no government can rescue its citizens from sliding house prices, as McRae says. The fundamental problem is that house prices became hugely overvalued and need to fall back to affordable levels before confidence can return. “However painful”, said Jeremy Warner in The Independent, the adjustment now under way “must be left to run its course”.