Three weeks ago Labour MPs vote against the Help to Buy ISA that was introduced in the Budget. But now Labour are supportive of the policy – only that they would apply a restriction. Those banks and building societies that accepted deposits under the scheme would be obliged to invest the money in new housing. Labour have found the back of an envelope and after a few hasty scribbles announced that this will fund 125,000 new homes.
But the whole basis for the calculation is flawed.
Either a housing scheme that a property developer or housing association is seeking finance for is reckoned to be profitable – or it isn’t. If it would be profitable then it would get the funds anyway. If the market’s verdict is that it would make a loss then the banks wouldn’t put money into it. If there weren’t enough profitable scheme on offer they would turn down the ISA deposits.
So if Labour’s meddling scheme made any difference at all it could only be a negative one. It could only reduce the availability of the Help to Buy ISA.
Brandon Lewis, the Housing Minister comments:
“Today’s panicked announcement has already unravelled with Labour admitting banks and building societies can’t be forced to deliver the policy – and they won’t because this ill-thought through proposal from Ed Miliband will kill the Help to Buy ISA.
“Under Labour house building fell its lowest levels since the 1920s and today’s announcement would harm the first time buyers it claims to help. Our Help to Buy ISA will support over a million first-time buyers achieve their dream of owning their own home.
“After just one week of the campaign, Ed Miliband has confirmed he’s anti-savers, anti-business and anti-aspiration. His botched housing policy announcement is another example of why he’s just not up to the job.”
The Government has made some important achievements regarding housing – they are detailed here. Far more needs to be done. The way to have a proper housing market is to liberalise the planning system, to free up the supply. There is actually the space for new housing – much if the land is state owned, the Ministry of Defence owns 600,000 acres which is equivalent to the size of Surrey. New housing would be popular – provided it was beautiful.
But Labour’s proposal would not increase the supply. It wouldn’t make more schemes available. It wouldn’t make current stalled proposals financially viable. If investors think a scheme would make a profit they will put their money in – they don’t need Emma Reynolds to tell them to. If they think they would lose money then her pleas would not make the slightest difference. She admitted, in an interview for BBC Breakfast this morning, that the banks would have a choice. They could not be forced to go ahead.
I don’t know whether Labour are sincere in their economic illiteracy or whether their proposal is a mere cynical publicity stunt. Either way it would not result in a single new home.