In yesterday’s post, I was a little sceptical about the Help-to-Buy scheme*. In the interests of balance, I thought I’d offer some thoughts as to why, on the other hand**, it might be a good idea.
1. It might give the economy a short term boost.
The British public (or certainly a large and loud section of it) like surging house prices – it makes newspaper front pages, and although I’m sure people can’t be that boring, I’ve heard it’s quite a popular topic of conversation at middle-class dinner parties. Now, you know my views on it. But if enough people get a feel-good boost, and go out and buy things, it will help the economy.
I think of Britain’s love affair with house prices as a bit like a kid who has too much fizzy drink. They get a bit hyper, and then come down, and don’t do their long-term health much good. But if they’ve been laid down in bed, lethargic for a while (a bit like our economy), then maybe a sugar rush might do them good. It’ll get them out of bed, and able to start on a healthy diet and exercise and so forth.
Similarly, maybe the Help-to-Buy will give us the spur out of our flat-lining economy***; and then we can try and move to a more sustainable growth model.
2. It might be a good deficit reduction strategy.
The government has always claimed that one of its key missions is to reduce the government deficit****. Now, for every borrower there must be a lender. If the British government is borrowing money, then everyone else, in total, must be saving. We can divide ‘everyone else’ into British households, British companies and foreigners. If the government wants to borrow less, then these three groups must save less.
Ideally this would come from companies investing in new factories and hiring people, rather than growing their cash piles. But companies have been reducing their investment since before the crisis – it’s a long term issue.
Or we could sell more goods and services abroad – but we’re not very good at that anymore, and it would take a long time to turn it around.
So, ultimately households will have to get into more debt so the government doesn’t have to – and what better way than to give out more mortgages?
These comments have been a bit narky, but they point to long term problems with the British economy, and the government is no worse than any other in prioritising the short term. And, given we’ve been through one of the worst recessions in living memory, a short term boost is far preferable to a long term bust – but I suspect it’s just storing up problems for the future.
But let’s not pretend that Help-to-Buy is the best way of helping first-time buyers. Along with the many other forces that keep homes expensive, it’s just a way of taking money out of the pockets of future homeowners and into those of current homeowners.
**Harry S. Truman, the 33rd President of the United States, once famously said, “Give me a one-handed economist. All my economists say, ‘on the one hand…on the other’”.
****The difference between what the government spends and how much it gets in taxes.