This blog has been consistently against the notion of an economy fuelled by house price inflation and once again the Tories are taking the cheap ticket to economic recovery and introducing, three months early, their help to buy scheme. This is reckless and cynical, since nearly everybody who can add up a column of figures with even partial accuracy, knows that this is the very biggest mistake possible in economic policy.
The reason this country is the second most indebted in the world is its inability to organise economic growth on a foundation other than the housing market, which is so over-valued that it requires continuous inflation to function and the rate of inflation has to be greater than general inflation in the economy. The housing market depends on borrowing and the percentage of income required to service a modern starter mortgage is so high as to leave nothing for saving or extras, leading to yet more borrowing. Thus the debt mountain of the UK is second only to the US. However in the US it represents about 1xGDP, whereas in the UK it is around 4xGDP. Moreover UK personal debt as a percentage of income is among the highest in the world.
The financial authorities have been at pains to try and set the mechanics of the economy on a more durable basis and have increased the level of deposit needed to buy a house and required stricter financial disciplines in selecting acceptable borrowers. This has slowed the housing market and, apart from London where currency tourists are snapping up property to rid themselves of depreciating cash, prices have been either steady or slowly falling. This has been good news and would, were it backed by an energetic construction programme of at least 250,000 new affordable homes to rent every year, achieve the rebalancing of the economy needed to sustain recovery.
Now Osborne, driven by an impatient Cameron, has swung his wrecking ball on this good work and gambled on fuelling a boom in time for the next election. Even if the plan succeeds, and no government plan in living memory except the poll tax, has had so many professionals advising against it, it will become a bust, just as all the other such booms in 1963, 1972, 1990 and of course 2007. All Tory governments except the last. That was the famous fighting duo of Blair and Brown.
House prices are already beginning to overheat in places, so there is a real prospect of the whole thing going pear shaped before 2015, not after. In that event the Tories can kiss good-bye to any prospect of a parliamentary majority for at least a generation, possibly two.