Not a time for the state to buy houses – or to expect us to
O dear: the government is making the same mistake with the housing market as those finance directors who launch buy-back programmes into a falling market. The weight of the buying is insufficient to push values higher and the purchasers soon realises they have overpaid.
The preview of the Queen’s Speech flagged a scheme to provide £200m for buying new homes and renting them out. The government may now be spending money like it is water, but luckily that sum is peanuts in terms of the housing market. It will probably purchase fewer than 1,000 homes – though that should be welcomed by a beleaguered house building sector.
Nevertheless, it makes no sense to waste even £2m buying assets that are falling in value. The state needs to negotiate a massive discount before such a move makes sense.
More worrying is the associated planned extension of the shared-equity scheme, currently available to key workers but now to be offered to all first-time buyers earning under £60,000. With prices falling fast – down 5 per cent in six months according to Nationwide and Halifax – and little hope of short-term recovery, why is the government putting more of our money into this market and why is it encouraging up to 75,000 buyers (its figure) to invest money they will lose?
The finance director who buys back the company’s shares at £10 then finds he can buy then them at £9 and £8 initially feels smug that he is now getting a better bargain for his good idea. As the market price falls to £7 and £6 shareholders start asking why he paid so much for the early shares. By the time the price is £5 or less it is usually reflecting the fact that there is no money left to continue buying. After that, the finance director tends to be fired and his successor issues new shares at £3 to rebuild the balance sheet.
The government finance directors will initially be pleased their money goes further in the housing market than originally thought. They will then face write-downs because they have overpaid. In time a new government will sell these state-owned houses as though it had discovered a new source of funds.
