Subsidizing housing

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subsidizing-housing

Property developers will be pleased by Housing Minister John Healey’s announcement that 270 developments have been shortlisted for government assistance totalling £925m. £419m of this takes the form of five-year loans (presumably at lower rates than offered by the commercial banks), while £339m will go towards affordable housing, and £166m be given as direct grants to developers.

Healey’s declared aim is to “help build the homes the country needs." One would think that a shortage of homes would sort itself out – that demand would push up prices, and developers would be able to make a profit on constructing new homes. On these 270 projects at least, that doesn’t seem to be true: since the housing slump, the projects need government help to make them viable. At more than £40,000 per home (22,400 are to be constructed), the scheme is an expensive way of building homes that cost more to build than people want to pay for them.

Perhaps the logic is that we need to provide more affordable housing (although only a third of the proposed homes fall into this category). But if that really is the idea, then surely the best way is not to subsidise loss-making developments, but to give grants to consumers who could not otherwise afford homes. Rather than a Soviet-style central government department determining where and how homes should be built, it should be left to the decisions of consumers and developers operating in a free marketplace – it is they who know best.

Healey boasts that the scheme will “create 20,000 jobs on housebuilding sites", ignoring the fact that government funding for these jobs must found from somewhere. It is perhaps the only merit of the plan that it is to be funded from cuts elsewhere, but nevertheless the money given to house-builders must eventually come from the taxpayer, either now or in the future. The scheme will not create jobs – it will take wealth from the productive areas of the economy, to subsidise the unproductive activities of private builders.

Now, it is true that in the long term we face a shortage in housing supply – the rate of building new homes just isn’t keeping up with the demand generated by a growing population and dividing households. But government handouts (and generous loans) are resolutely not the answer. Rather, if government is serious about tackling the housing shortage, it must address the heart of the problem: the stifling and illogical planning laws and politicisation of the planning process that hold back developers from pursuing really beneficial projects.