Should you buy a house this year or not? The answer was in the small print of Gordon Brown’s nonsense plans to support the housing market announced this week. One of the measures to be implemented is a scheme called Homebuy Direct, whereby first-time buyers with a joint income of under £60,000 will be able to borrow interest-free cash for five years from housebuilders and their new best friend, the Government, to help them to buy a house.
The key number here is the £60,000. That figure is two and a half times the UK median wage. So what the Government is doing is explicitly recognising that even a couple both earning considerably more than the UK average are currently unable to get a conventional loan of the magnitude they need to buy a house.
What this state of affairs then seems to tell Gordon Brown is that the Government should help these relatively high earners out. But it tells us something completely different. It tells us that house prices are still far, far too high – otherwise two average salaries could surely bag the average house – and that they must come down much, much further before things start to approach equilibrium again. That might be bad news for all those silly homeowners who have spent the last decade blahing on about how their houses are their pensions, to say nothing of those who invited the misery of negative equity into their lives by taking out 100%-plus mortgages; and it is most definitely bad news for tax revenues and for the economy. But that’s the way it is.
Alistair Darling clearly knows this – hence his comments about this being “arguably” the worst economic situation we’ve been in for 60 years – but the reaction to his comments seems to suggest that not everyone else does. The nation’s commentators were aghast at his pessimism and rushed to point out the fact that official statistics show the British economy is still growing, inflation is a mere 5% and unemployment at only 5.4% is still low by historical standards. It just isn’t that bad, they said. But surely the Chancellor’s point, whether he meant to make it or not, was not that things are already the worst they have been for 60 years, but that the conditions are in place for them to become that bad. And on that he is absolutely right.
Unemployment may well be much higher than 5.4% already (who has confidence in the statistics?) and is heading higher fast, as anyone working in a restaurant, a pub, a shop, a construction company, or, indeed, a City office can tell you. We are on the verge of a sterling crisis. Corporate and personal bankruptcies are on the up, as are repossessions. I could go on. There isn’t a cheerful leading indicator out there. But the basic point is this: there is no point in looking at today’s statistics and saying everything is fine. It isn’t. It’s just that the extent to which it is not fine is not yet in the numbers.