Cameron’s Housing Fix Seen as Bad Policy for Britain

A London Taxi Passes a Property in St James's Square
The construction push comes as older workplaces in St. James’s and Mayfair, many built as townhouses, are turned back into homes to profit from soaring prices. Photographer: Jason Alden/Bloomberg

Prime Minister David Cameron’s Help to Buy plan to aid home buyers is the wrong policy for Britain, economists said, adding to criticism of an initiative that was ramped up just this week.

Two thirds of 31 economists described the measure as “bad,” according to a Bloomberg News survey published today. Ten economists said it is a “good” policy. The prime minister this month accelerated the second phase of the program, which gives people the chance to buy a home with a down payment of as little as 5 percent.

The new phase of the plan has heightened criticism it may fuel a bubble in Britain. While the government and the Bank of England say the property market is recovering from very low levels of activity, house-price growth is outpacing inflation and incomes, raising questions over how much support is needed.

“It is the wrong policy at the wrong time,” said Peter Dixon, global equities economist at Commerzbank AG in London. “Effectively what the policy is designed to do is encourage households to load up on debt. Surely a sustainable growth path can be achieved if households are not burdened.”

Mortgage lender Halifax said on Oct. 3 that property value rose for an eighth month in September as government aid helped demand outpace supply. Acadametrics said today that prices have increased 3.8 percent in the past year and sales have climbed 12 percent.

Mortgage Growth

U.K. mortgage advances reached 68,212 in September, the highest since 2008, chartered surveyor e.surv said in a report today. The number of borrowers with deposits of 15 percent or less amounted to almost 8,200, a 60 percent increase from the previous year.

Barclays Plc said today it will participate in Help to Buy, joining lenders including Royal Bank of Scotland Group Plc’ and Lloyds Banking Group Plc.

Ed Balls, the Treasury spokesman for the U.K.’s Labour opposition, has described Help to Buy as “totally ill-thought through” and criticized the government for not doing enough to boost homebuilding.

Cameron, facing local and European elections next year and a general election in 2015, used the annual conference of his Conservative Party to announce he was accelerating the initiative. He defended it last week, saying the mortgage market “isn’t working,” and he’s helping to correct “a market failure.”


While construction output declined in August, homebuilding surged to its highest level for at least three years, the Office for National Statistics said today. Total construction, which accounts for 6.3 percent of the economy, slipped 0.1 percent from July. In the three months through August, private homebuilding rose 8.4 percent and was up 15.3 percent from a year earlier.

The Bloomberg survey also showed that economists have become more optimistic about the outlook and see faster U.K. growth in the second half than previously projected.

Gross domestic product will rise 0.5 percent this quarter after expansion of 0.8 percent in the three months through September, according to the survey. That’s higher for both quarters than seen last month.

GDP will rise 1.4 percent this year and 2.2 percent in 2014, compared with predictions of 1.3 percent and 2 percent previously, according to the median of 50 economists. The median projection for 2015, based on 26 estimates, is 2.4 percent.

IMF Forecasts

The International Monetary Fund raised its forecast for U.K. growth this week, and now sees expansion of 1.4 percent in 2013 and 1.9 percent next year. It signaled the economy isn’t yet fully recovered and said monetary policy should “stay accommodative.”

Echoing the IMF view, a majority of economists in the Bloomberg survey said the U.K. isn’t at what BOE Governor Mark Carney has termed “escape velocity.” Just 10 of 36 said it has reached that level.

As the outlook improves, economists are sticking to the view that unemployment will fall to the Bank of England’s 7 percent threshold before 2016. The threshold was introduced by Carney in August as part of forward guidance, under which policy makers won’t consider raising borrowing costs until the jobless rate, currently at 7.7 percent, reaches 7 percent.

While the BOE forecasts unemployment won’t decline to that point until late 2016, 21 of 34 respondents in the Bloomberg survey see it reaching the level by the end of 2015. Five of those predict it happening late next year.

Guidance Split

The BOE’s Monetary Policy Committee kept its key interest rate at a record-low 0.5 percent yesterday and its bond-buying program on hold at 375 billion pounds ($599 billion).

Three months after Carney implemented guidance, economists are divided over its effectiveness. While 22 of 37 said it has has been ineffective so far, the rest said it’s working.

For Jens Larsen, a former BOE economist who now works at RBC Capital Markets in London, guidance has worked by pushing back against some of the impact of the stronger recovery on expectations for tighter policy.

“It’s helped keep the bank rate debate focused on whether rates should be raised in 2015 or 2016, rather than next year,” he said.

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