I\’ve said it before but this is still blithering stupidity

The Prime Minister and his deputy, Nick Clegg, will unveil proposals to help first-time buyers of new homes by carrying part of the risk of their mortgages.

This has been done before. In the US.

The people who did it, Fannie Mae and Freddie Mac, went gloriously bust in doing it too. And the FHA, which is still doing it, is going to go gloriously bust at some point in the future.

Agreed, the two sets of schemes were slightly different. The FMs really insured interest rate risk thus allowing the 30 fixed rate mortgage. The FHS guarantees a mortgage when there\’s only a 3.5% deposit….and there are other schemes which mean you can get that as a grant in certain parts of the country too.

But this sort of intervention into the market is dumb, dumb, dumb.

Even if it works it won\’t really work. For if you subsidise one generation of first time buyers then they\’ll stick there in the market like constipation in the gut. Who will move to get off the subsidy? You\’ll just end up with entry level housing being occupied by those who will not give up said subsidy, dried turds blocking the free flowing of the market.

The answer to the British housing market is to make housing cheaper through reducing the cost of the most expensive part of it, the scarcity value of planning permission. Which is already being addressed by the changes to said planning system.

But then this is the problem with politics isn\’t it? Sorting out the system properly is going to take a few years: which doesn\’t give the politicians the ability to grandstand and wave our money about as the solution.

It does have to be said that Murphy is right on one point: we do need courageous politicians. However, ones courageous enough to say that this problem isn\’t best solved more more rule, more subsidy, more of your money being spent on other people. Rather, those courageous enough to say that actually, this problem has been caused by the current rules therefore we\’re relaxing the current rules to solve the problem.

16 thoughts on “I\’ve said it before but this is still blithering stupidity”

  1. I dream of a politician with the guts to say “No, we won’t be doing anything. It’s not appropriate for the government to act on this issue.”

  2. That’s why I said dream, rather than hope. I think they might get elected, but they’d certainly never be reelected.

  3. Mattthew, this is one case where we do want politicians to do something – slashing and burning their way through the planning regulations, even at the risk of unintended consequences.

  4. Make debt finance cheaper and easier to get and the price of what that debt buys will rise.
    Even people of the mental stature of Clegg and Cameron can gets their heads round this equilibrium, surely?
    Another question. Will the funding for this come from money the government hasn’t got or through some off balance sheet chicanery?

    However, making a supreme effort to be nice to politicians, it could be argued that Cleggeron’ intention is to head off a housing bust (likely to happen if the planning process is reformed). With most start-ups being financed with some home equity, this may not be totally dumb.

  5. Still, it does have one interesting side effect.

    Politicians famously, along with Mr Ford, think history is bunk. But sometimes you think that, when something has proved impossible in the recent past, even politicians would think twice about repeating the same mistake.

    Bush and Blair seemed to indicate that this event horizon was about 13 years. They invaded Afghanistan in 2001 when the Russians had shown the futility of this in 1988.

    But here we have an example of politicians ignoring an event that occured just over a year ago, when Mae and Mac were delisted.

    Still, perhaps I’m wrong in attributing a new record to Cameron/Clegg. Didn’t Gordon actually lead Bush into a broom cupboard a couple of years ago when he forgot where he was?

  6. It’s almost impossible that Cameron could be a worse PM than Blair, but he could prove to be a worse one than Brown.

  7. “Rather, those courageous enough to say that actually, this problem has been caused by the current rules therefore we’re relaxing the current rules to solve the problem.”


    The decision to effectively end the ability of local authorities to refuse planning permission for anything will have funded a good slice of various people’s election campaigns… taking the path of least resistance may not always be wrong, but to call it “courageous” is pushing the boat out a bit.

  8. The scarcity value of planning permissions: what TW trots out when he ducks the artificially created land scarcity issue and the need for an Adam Smith land tax.
    Guardian p9 “Analysis” by Philip Inman 21.xi.11
    “a recent study estimates the UK ‘s leading builders have a sufficient land bank for 620,000
    houses with almost 50% having planning consent of some kind…. The social housing group said private developers would start building only when a tax was to applied to their land banks.It said:’While they suffer no cash loss from holding onto their land bank,there is no incentive to push these out into circulation.’ ”

    Tim adds: Private housebuilding is some 100,000 a year. It can take 5 years to gain planning permission on a plot. Thus housebuilders are holding a reasonable and normal stock, no?

  9. For the politicians the pay-off is now (they appear as noble generous and good, and grab votes) but the pain is much later.

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  11. @Tim
    You need to prove this idea of 5year planning delays.”Housing Supply and Planning Delay in the South East” by Ball, Allmendinger and Hughes (on Net) gives the median figure of 11 months.

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