Help to Buy will inflate property prices, says the OBR. So why didn’t the government find that out before it announced this risky scheme?
The Office of Budget Responsibility has announced that the Help to Buy scheme – the headline proposal of last week’s Budget to stimulate the housing market – will push up house prices in the short run, “by and large”.
The OBR, the government’s independent economic and financial analysis body, is, in fact, distinctly lukewarm about the scheme overall. “In the medium term, will the increased house prices stimulate more housebuilding?,” pondered Steve Nickell, a member of the OBR to the Treasury Select Committee. “Our general answer to that would probably be: A bit, but not very much.”
Of course, you’ll see plenty of headlines about this today. Help to Buy received plenty of nervous scepticism when it was announced last week by the Chancellor (apart from in the construction and property press, which seemed warmer, unsurprisingly). The scheme sees government offering interest-free loans for five years loans of up to 20% of the value of new build homes worth up to £600,000, in return for the government taking an equity stake in the property.
The aim is to help those without large-enough deposits to get on the housing ladder anyway (check out the government’s infographic of how it works). It is not at all dissimilar to the US’s Fannie Mae and Freddie Mac mortgage guarantee schemes, although the US versions guaranteed the whole loan whereas Help to Buy only guarantees a portion.
Analysis of Help to Buy has been widespread, so I won’t regurgitate the arguments here. Suffice to say there are many fears about a scheme that seems to recreate the model that floored the US economy, and subsequently much of the world’s.
Here’s what I find interesting about today’s revelation from the OBR: not so much that the body is unsure about Help to Buy’s effectiveness, but that George Osborne and friends didn’t establish that point of opinion before deciding that this scheme was the one to announce.
Why not consult the OBR about the economic and market impact of this proposal before cementing it in the Budget? Why not discover the OBR’s analysis is that this – by most accounts very precarious and high-risk scheme – is a wild gamble whose only potential positive is that it might help “a bit, but not very much”?
Aha, you might say, but the OBR should not be informing policy behind closed doors, because it’s entire reason d’etre is to be a wholly impartial analyser of government measures. Fine – but does that really make sense? We are now facing the realities of a scheme that seems riddled with potentially very serious risks that are, if the OBR’s analysis is to be believed, not remotely counteracted by the measly rewards the scheme might produce.
The government will of course have done its own substantial research into the ramifications of the Help to Buy scheme, and we can only hope that its findings were far more positive.
But I would like to propose a more open dialogue about schemes on this scale.
So imagine this. The relevant government bodies draw up three separate proposals for schemes that can stimulate house-building and home-buying in the UK. These are put forward in an open forum to the OBR, and the coterie of media and economic analysts who have since been commentating on whether the scheme would work in the manifest articles and research papers that we have seen over the last week.
This all happens ahead of the Budget. The most effective scheme, as decided by this expert and public panel, is then announced in the Budget.
Perhaps it sounds naïve and idealistic to suggest a way of forming policy that is this open. And, yes, there might be terrible risks of only the most populist schemes then being taken forward, rather than perhaps more painful ones that have more positive economic effects. (Although isn’t there always the terrible risk of populism in government policy formation? Austerity aside…)
Maybe we could take this further still. We are starting to see the appetite for more engagement with policy formation, and the hunger for a smarter way of bringing in new measures that demands more openness. Last week Philip Booth of the Institute of Economic Affairs called for the Budget to be scrapped in its current form, saying that policies are rushed through rather than being scrutinised beforehand. He suggested measures be debated openly and over time rather than being headline-grabbingly revealed on Budget day in one big media-frenzied barrage.
What if proposals were completely opened up to public and expert scrutiny? Not just in the manner I have outlined above, but on websites that the whole populace could comment on, engage with, maybe even vote on for individual measures. Again, there is a risk of the only measures being taken forward being populist rather than economically logical. But in our digital age, could we not create ways in which more people are able to contribute to policy? Should we be seriously contemplating crowd-sourced governance?
The government’s Red Tape Challenge and e-petitions sites give an early feel for how this more open, truly democratic and publicly engaged policy-formation might take shape. Could we take it even further? And would this be a better model for creating new policy?
I’d be interested in hearing your thoughts in comments below, or on Twitter @sophiehobson and @londonlovesbiz.
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