20 October 2008

More House Price Nonsense

Alex Salmond of the SNP always seems especially eager to eschew policies of substance in favour of soundbite populism. His latest move continues the trend.

He has announced that a shared equity scheme for first time buyers in Scotland will be extended, with the intention of enabling more young Scots to get on the property ladder. Coming from a man who was an economist before becoming a politician, it is an absolutely ridiculous policy decision.

Affordability will improve without these interventions, because house prices are falling anyway. By pumping more money into the housing market, the SNP will prop up the underlying house prices. That might not be particularly bad news for those that can get an equity share arrangement, but for those that can't, things will be worse than they would have been without the scheme, because they will find it harder to afford the house prices that the government is artificially inflating.

In the long run, this kind of equity share approach is completely counter productive, because the way it forces house prices up results in the government having to pump more and more money into the scheme to maintain the very affordability that the scheme itself is harming.

You've also got to seriously question the wisdom of the government taking a stake in an asset which is currently falling in value and is predicted to continue falling for some time.

Let's also not forget that one of Salmond's pet policies, the local income tax, will also have a major impact on affordability. By removing council tax and thereby reducing the cost of holding domestic property, it will increase the demand for houses and push prices up. There was a spike in house prices when domestic rates were abolished in favour of the poll tax and exactly the same effect will play out with local income tax.

In short, if Alex Salmond wants to improve the affordability of housing in Scotland, he should do exactly the opposite of almost everything he is doing now. Unfortunately, his current policies make for good soundbites, so I wouldn't expect that to happen.

1 comment:

AntiCitizenOne said...

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