What would you do if you ran a country in which various rubbish policies had, over several decades, resulted in a long-term housing bubble, one which meant that the average house was far too expensive for the average person to buy?
Would you a) cancel the rubbish policies and consider introducing some ideas (free markets etc) that might bring prices down or b) introduce more rubbish policies that would allow a small and seemingly random part of the population to buy state-controlled housing at super cheap prices?
As you are a MoneyWeek reader I am going to assume that the answer is a. You would look to normalise interest rates, to align the taxation of housing with the taxation of other assets, and to shake up planning regulations such that the houses people can afford to buy as prices fall actually get built.
David Cameron and George Osborne aren’t with you on this. They’ve firmly chosen b.
First, they came up with their ludicrous effort to bribe the nation’s pensioners (again) with changes to the inheritance tax (IHT) rules that introduce new allowances for “family houses”, and so further incentivise us all to buy and hang on to expensive houses for as long as we can.
And today we hear that they plan to extend what has already been a hideously distortionary policy – Right to Buy – to housing association properties.
There are 2.5 million housing association homes; 1.3 million of those are occupied by tenants who have already lived in them for three years. All of those tenants will, if Cameron gets his way, be eligible to buy the houses they live in at whopping discounts to the market price – up to £102,700 inside London and £77,000 outside it. That’s the kind of money most people (who don’t live in housing association flats) can barely dare to dream of saving, let alone being given for nothing by decree of the state.
The problems with this are pretty endless. It doesn’t do anything to deal with the perceived shortage of housing in the UK, social or otherwise. It just transfers social housing to private housing on the cheap. Note that since 2012 some 26,000 houses have been sold under Right to Buy. Under 2,300 have been built. Note, too, that the policy isn’t quite creating the home-owning classes Cameron hopes for: 36% of those sold in London so far are now in the hands of private landlords.
You might also bear in mind (given that Cameron clearly hasn’t) that housing associations survive on debt. That debt is repaid with the streams of income from their rents. How are they to manage any borrowing and building without those rents?
Right to Buy is all also horribly unfair. What of those who would have liked housing association flats but have ended up renting privately thanks to the lack of availability? How will they feel about missing out on this bonanza? And how will they be compensated?
If I was a buy-to-let investor letting to anyone getting Housing Benefit, I might start worrying about how long it is until I am forced to rent to them at a discount to the market price.
And of course there is the fact that it could be impossible anyway. As David Orr of the National Housing Federation points out here, most housing association are charities, and “most charitable rules say that you can’t normally dispose of any assets you own for less than their full value, as all your assets must be used to meet your charitable objectives.”
Encouraging owner-occupation might be a nice idea, but I doubt very much that promoting it for one group over another counts as a charitable activity. No wonder, then, that as a policy, Right to Buy isn’t exactly very popular: the most recent polls showed 66% of people either against it or unsure about it.
The Tories may think that policies such as this make the property-owning democracy they (and the rest of us) want to encourage more likely. But I think they are very wrong. It would be better to free the market and let prices fall than to try and keep the bubble show on the road with the housing equivalent of lottery wins for one sector of society.
This isn’t fair and it isn’t clever. Instead it is one of the worst policies to have come out of this election campaign so far. And with Ed Miliband and Nicola Sturgeon both pouring out electoral bribe propaganda, that’s really saying something.