A Rare ‘Well Done’ For A Government Initiative
There has been much talk in the past week or so about the future of Help To Buy, the government’s scheme to assist people to get on the property ownership ladder, writes Tony Abel.
The initiative has undoubtedly been a big hit. In the context of successive damp squib government schemes to inject some life into the market and increase the number of new homes being built, Help To Buy stands out as one which was an immediate success. Since it was launched in 2013, more than 169,000 homes have been bought with the assistance of the scheme in England alone.
So why are there voices calling for Help To Buy to be abolished? Critics have two main gripes about the scheme: the first is the view that the government should not be subsidising home ownership with taxpayers money. The second is that Help To Buy has skewed the market by increasing demand and thus driving up prices, unjustly benefitting home owners and developers.
When you start to delve into the detail of both claims, however, they don’t really hold water.
Help To Buy is not a subsidy for home owners. It works by the government providing an equity loan up to a maximum of 20 per cent of the full purchase price, so that buyers can obtain a mortgage with a relatively small deposit (five per cent).
When that property is finally sold, the governments loan is repaid, plus any capital growth on that percentage of the property. If the home owner wants to buy out the government’s 20 per cent share at any stage, they have to pay the current market value, not the amount which was forwarded when the initial purchase took place.
Given where house prices have gone since the scheme was introduced, Help To Buy looks like a pretty good investment for the taxpayer: the average house price has gone up by 34 per cent in that period. Far from being a cost to the taxpayer, Help To Buy is rendering a healthy capital return on investment, not to mention the interest also being received.
So what about the argument that by stimulating demand, Help To Buy has driven up prices? Well, any market is about the balance between demand and supply. If you increase just one side of the equation, you will indeed affect the equilibrium.
But what Help To Buy has done is unlock the construction of many more much-needed new homes. House builders simply won’t build if there are not enough buyers for their homes, and this was the situation which spurred the government into introducing the scheme.
In this regard it has worked well. In 2012/13 (the last year before Help To Buy), just 118,540 new homes were built in England; in 2016/17 the figure was 183,570. Help To Buy has stimulated the supply side, so the argument that it has skewed the market is clearly wrong.
It is very rare to see a government initiative which is properly thought-through, well-executed and successful. With the possible caveat of refocussing it solely on first-time buyers and further restricting the value of property to which it can be applied, the talk needs to be of extending the scheme beyond its current 2021 review, not abolishing it.