Osborne is not prepared to put money into building houses in areas that people work and at prices they can afford. Instead, he is offering a taxpayer guarantee of 20% on the price of a new house if you can find just 5%. The move has shocked many economists since it looks just like the sort of ‘sub-prime’ loan subsidy which was a key trigger of the 2008 financial collapse in the US. Osborne hopes this irresponsible move will push up house prices so that the government will get its money back, when you sell.
The guarantee, economically, is no different than more government borrowing. It commits the taxpayer to a future payout of £12 billion possibly at a time when the government has little control over economic events.
For most workers higher house prices are very bad news. Thirty years ago the average house was four times the average wage; now it is eight times. This means that, despite recent falls, in a single generation house prices have doubled relative to your income.
The alternative is obvious, and has been for a long time: use capital so councils and housing associations can build social housing. When Thatcher sold off council houses thirty years ago, councils were forbidden to use the proceeds to build more house. The result was a housing shortage and price inflation.
This is reversable if councils and housing associations are allowed to respond to housing needs in their areas, including building houses and flats of differing sizes to meet local needs. They would also make the best use of land available. Capital could be raised by allowing Local Authorities to issue housing bonds to savers in their areas providing better saver protection and allowing older generations to help their children and grandchildren.
But for this government that would be an anathema. They would rather grab money from tenants through the so-called bedroom tax. Better for them to demonise the poor and subsidise the bankers and speculators.