Margareta Pagano: This helping hand on homes is sheer lunacy

George Osborne has failed to realise that building affordable houses is the way to solve would-be buyers' problems – and boost the economy too

Britain has a chronic housing crisis; but it's a supply-side problem, not a demand one. House prices are too high, with most properties costing at least five times the average salary. Over the past two decades, house prices have more than doubled in real terms while incomes have not.

With prices so high and incomes falling fast, it's no surprise that banks and building societies will only lend to buyers who have at least a fifth of the price in ready cash. The banks are correctly terrified that borrowers will not be able to finance future repayments when interest rates rise again, or that house prices do fall.

After all, it was mispricing risk in the Naughty Nineties that got the banks into trouble before, and they don't want to drink from that punchbowl again. One in eight of households already has mortgages in forbearance, and another 2 per cent rise in base rates could push many more into the danger zone.

That's why George Osborne's Help to Buy mortgage subsidy scheme is sheer lunacy as it confuses the supply-side problem with a demand-side problem. Is the Treasury now in the business of being a player in the sub-prime lending industry? While Mr Osborne's plan may be rooted in the best of intentions, the unintended consequences could be to drive up prices in an already sclerotic and rigid market.

Yet there's an alternative, and that's to build more houses now, and more affordable ones; private as well as new council housing. Why not? It was a Conservative government that led the way with council-house building in the 1950s so why shouldn't the coalition do so again?

If you build more houses, prices will come down. More homes should also bring down the cost of rents that are also punitive. It's not a new problem: the UK has had a housing shortage for decades but since the financial crash, the number of homes being built has fallen off a cliff – in 2010 the number of new homes was about 23 per 10,000 inhabitants. Only 100,000 or so new homes are being built a year – about half the level required to meet projected demand. Land for housing is crying out to be developed. UK house developers have at least a million plots waiting to get built on while there are so many brownfield sites that are empty, waiting for permission to be converted into residential use.

But there's a problem here. The developers are as frightened as the banks of exposing themselves to over-priced properties so long as they believe prices might fall and local councils are still living in la-la land over planning permission. That's why building state-financed housing for renting, an idea being pushed by Dr Tim Morgan of Tullett Prebon, is such a sensible solution. It would provide affordable housing and give the Chancellor with the single biggest lever he has to boost the economy; and it's a home-grown solution that requires no imports.

It's one of life's mysteries why the Chancellor hasn't pushed for more housing development, which would at a stroke help the young on to the housing ladder and boost jobs from plumbing to retailing. He's even got his own lethal weapon in Eric Pickles, the local communities minister, who has already done so much to shake up planning laws by forcing all those nimby local councils to come up with new numbers in the National Policy Planning Framework.

Mr Pickles has given councils until 1 April to come up with the numbers and if they don't, he should carry out his threat to strip them of planning powers. If there is a problem over building new homes, it's not that they encroach on green belt, but that so many of them, to borrow a phrase, are "pig ugly". That's the real crime.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

They fled war in Syria...

...only to get stuck and sidetracked in Hungary
From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

Title sequences: From The Prisoner to Mad Men

Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

Giorgio Armani Beauty's foundations

Sumptuous fabrics meet luscious cosmetics for this elegant look
From stowaways to Operation Stack: Life in a transcontinental lorry cab

Life from the inside of a trucker's cab

From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

Kelis interview

The singer and sauce-maker on cooking for Pharrell
Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea