“Hopefully we will get a little housing boom and everyone will be happy as property values go up,” George Osborne is said to have quipped at a Cabinet meeting earlier this year. The Chancellor’s joke misfired; some Cabinet colleagues felt that raising the prospect of another housing bubble was no laughing matter.
This week David Cameron launched phase two of the Help to Buy scheme, designed to help people who cannot raise a big deposit to get on or move up the housing ladder with 95 per cent mortgages backed by government guarantee.
Officially, the Government plays down the threat of another housing boom, despite a rise in house prices.
“People who think there is a housing bubble should go out round the country and see that house prices are pretty flat,” Danny Alexander, Mr Osborne’s loyal Liberal Democrat deputy, declared on Tuesday.
Privately, other ministers are recalling Mr Osborne’s light-hearted remark, and are worried that the lessons of the last housing bubble are not being learned. I also detect some nervousness among officials at the Treasury and Bank of England.
When the Chancellor decided to bring forward the start of phase two from January to this month, he was advised to bring in some safeguards to prevent the housing market overheating.
The Bank’s Financial Policy Committee (FPC) will monitor the scheme and report annually. It is due to end after three years – conveniently, after the 2015 general election.
In the meantime, Help to Buy might well earn the Conservatives a nice little political dividend in their South-east heartland and London, which has a crop of important marginal seats.
The scheme seems designed to produce Mr Osborne’s “little housing boom” – notably, through the £600,000 ceiling for house purchases to qualify. There is another clue in the name, a deliberate echo of one of Margaret Thatcher’s greatest hits – the Right to Buy scheme that allowed council tenants to buy their homes.
Some government insiders believe the FPC could flash a danger signal about London and the South-east – even before its first annual report next September.
There is already speculation that it might call for the cap to be cut to £300,000. That would kickstart the housing market in areas where it needs a boost, such as the North-east, the North-west and Northern Ireland, without risking a dangerous overheating in London and the South-east.
Although the FPC does not have a formal veto, if Mr Osborne received such advice, he would surely have no option but to accept it.
Colleagues say the Bank of England’s new Canadian governor Mark Carney will be watching the housing market very closely, a hint that he too has private reservations about Help to Buy.
Vince Cable, the Liberal Democrat Business Secretary, has alreadyvoiced his doubts in public. They should be taken seriously, not least because he predicted the previous credit crunch.
Nick Clegg steers a middle course between Mr Alexander and Mr Cable, saying there is no bubble yet but that vigilance is required, adding that the underlying problem is the “supply” of new homes.
For now, most Tory MPs are happy that the Government is “doing something” to help house-buyers. But some have doubts. Andrew Tyrie, a former Treasury adviser who chairs the Commons Treasury Select Committee, is worried that “the political pressure to extend the scheme could be immense”.
His committee warned it could raise house prices rather than stimulate new building, as Mr Cameron claims.
The suspicion is that Help to Buy has been designed for political rather than economic reasons. It may be good politics in the short term, but bad for the economy in the long run.