The dangers of rigging the housing market

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All of a sudden, Gordon Brown is desperate to present himself as the house-buyer's friend. First, in his pre-election Budget, he pledged to double the level at which buyers start to pay stamp duty. Now he intends to subsidise mortgages to help people get on to the housing ladder.

All of a sudden, Gordon Brown is desperate to present himself as the house-buyer's friend. First, in his pre-election Budget, he pledged to double the level at which buyers start to pay stamp duty. Now he intends to subsidise mortgages to help people get on to the housing ladder.

Over the weekend, he unveiled a part-ownership plan which, he estimates, will help around 100,000 "young couples" currently unable to buy their own homes. Apparently, buyers will have to raise as little as half of the cost, with the remaining equity being shared between the Government and a commercial lender.

There is clearly a problem with the affordability of housing in large areas of the UK. This is especially true for key workers, who have seen their wages outstripped by rising house prices. It is simply impossible for many public-sector employees to buy a house in many areas. Nurses, for example, are priced out of 93 per cent of UK towns; firefighters out of 90 per cent. It is also extremely difficult for teachers and police officers. Unaffordable homes used to be mainly a London problem, but the booming housing market of recent years means that is no longer true. And the Government, which decides the wages of those key workers, clearly bears some responsibility for this situation.

But there must be reservations about whether Mr Brown's scheme is the best way to rectify the situation. For a start, it is not directly targeted at key workers, but rather at any "worthy" first-time buyers. It is hard to argue against poorly paid public servants being given special help by the Government. But justifying subsidies for all low-paid, first-time buyers is more difficult. Is it the job of government to subsidise what is effectively a personal wealth-creation scheme? And surely it would be preferable to help key workers by raising their wages rather than subsidising their mortgages.

Another problem with this scheme is that it reflects the Chancellor's heavy-handed approach. Would it not have been simpler to bring back tax relief on mortgage payments for first-time buyers? The Chancellor also shows himself disturbingly willing to interfere in the functioning of a free market. One of the primary drivers of house prices has been a shortage of supply. Since the "right to buy" was introduced, the number of council houses has been in sharp decline in certain areas. The Government has pledged to build more. And now house-price rises appear to have stalled, that should be given time to take effect - or even extended. Instead, we now have a scheme that could crank up house price inflation once again.

By all means, let the Government help key workers buy their own homes - but not by clumsily rigging the housing market.

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