The headlines for home owners in today's budget are an extension to the stamp duty "holiday" and guarantees for 95% mortgages. Neither step will contribute to what should be the overriding policy objective, which is to make homes more affordable. Instead they will just push prices up still further.
The whole purpose of the so-called holiday is to boost the market by reducing tax on the purchase price. This gives buyers more to spend, which pushes up prices as we have seen. This is a straight transfer of wealth from the common purse to individual property owners, which means less money for the government to spend on things that matter a lot more.
Guaranteeing 95% mortgages has a similar effect. It plays to the idea of housing as an investment asset, encouraging first-time buyers to gamble vast sums that they don't have on the basis that house prices always rise. Because commercial lenders don't fancy the risk, the government (aka the rest of us) is taking the risk for them.
In practice, however, for people who actually live in houses and flats the idea of a home as an investment asset is a self-serving myth cooked up by lenders and speculators. Money that goes into housing is usually never seen again. If it’s rent, it’s gone forever, and if it’s a purchase the chances are it will be followed by another purchase, since people need somewhere to live for the whole of their lives.
When homeowners "up-size" they will always be better off if house prices have fallen. That's because the reduced sale price of the cheaper first home is more than offset by the reduced purchase price of the larger second home.
Even when money comes out of housing, when people are downsizing or when they die, there’s a good chance that much of it will go straight back into housing for the next generation. If the bank of Mum and Dad - or of Grandma and Granddad - has less in its coffers because house prices have fallen, then that also is offset by lower prices for their children and grandchildren.
Money locked up in housing is frozen
money. It doesn’t flow through the economy helping people to create
wealth. So the less that is locked up, the better for the econ
omy, because more is available to help people do and make things that will improve the quality of their lives.
I'd doesn't take a degree maths - or even economics - to work out that people would have more spending money if their mortgages or rents were significantly lower. And you would think that something like that would be politically popular. It doesn't need a sudden price crash - just a gradual readjustment in government policy to bring prices down to something more reasonable.
Sadly it won't happen within the current neoliberal economic system. For free-market speculators, the UK housing market is the gift that just keeps on giving, with low interest rates, high rental returns and increasing capital values. It will take a new approach to political economy, a more human politics, if we're going to fix this. But fix it we can, if we choose to do so.