Three former Chancellors warn in this morning’s Financial Times of the danger of a house price bubble. This is not a joint venture by Lord Lamont, Lord Lawson and Alistair Darling: the newspaper contacted them separately. But they all say much the same thing. The Help to Buy scheme introduced by the present Chancellor, George Osborne, is in danger of further inflating a bubble which is bound at some point to burst.
Lord Lawson is the most specific: he says Help to Buy should be ended in London, and that the maximum value of property bought under the scheme should be reduced from £600,000 to £300,000. Lord Lamont points out that while demand can be increased quickly, through measures like Help to Buy, supply can only be increased slowly. Mr Darling observes in his most Eeyorish tone that successive administrations have presided over “bubble after bubble” which eventually bursts: “We keep repeating the same mistakes.”
According to the Office of National Statistics, UK house prices grew by 9.1 per cent in the last year. There is not just the danger of a bubble: in many parts of the country, and especially in London, we already have one. Part of the problem is that the last bubble, which Gordon Brown inflated to such enormous size during his long time as Chancellor, never completely deflated during the ensuing bust: there was a decline in house prices, but not the kind of collapse which had occurred at the end of previous booms. Absurdly high property prices have become an entrenched feature of the system.
It would be quite unrealistic to expect Mr Osborne, one year before a general election, to approach this bubble with a large pin and announce that he is going to burst it. Nor would such an action be desirable, for it would wreck the economic recovery which is under way.
The work that is needed is much more long-term, and much of it is already under way. Supply does have to be increased in the parts of the country where people want to live. Prosperous cities have to be allowed to grow. They cannot be strangled by a socialist system of planning controls which has long outlived whatever utility it may once have possessed. Nick Boles’s plans for a Right to Build, unveiled this week, are a very hopeful step in the right direction, as even Left-inclined newspapers recognise.
In this respect, the words of the three Chancellors are also quite hopeful, for they are indicative of a changing climate of opinion. We are beginning to realise that if our children are to have any chance of becoming home owners, then knee-jerk resistance to new building has to end.
The Conservatives have here a political opportunity. When Ed Miliband is confronted by a case of market failure, his instinct is to impose new restrictions. The Tories can trump that by being the party which extends the freedom to own your own place beyond the already prosperous classes. Margaret Thatcher did that with the sale of council houses under the Right to Buy scheme: a name of which Help to Buy is a faint echo.
Conservatives believe in a property-owning democracy: a term coined by Noel Skelton in 1923. Almost a century later, the party still wrestles with the problem of how to avoid being seen as only concerned to uphold the power and privileges of the rich. It must go in to the next election with plans to extend the privilege of home ownership far beyond anything Labour even dreams of being able to achieve.