The Government should scrap its Help to Buy scheme and instead focus on ideas to improve supply such as abolishing affordable housing quotas and releasing more farmland for development, according to the Adam Smith Institute.
The Government’s Help to Buy scheme began operating earlier this year and is due to be extended in January with a £130bn mortgage indemnity scheme for new and existing houses where the Government guarantees up to 15 per cent of the purchase price, with the borrower putting down a deposit of between 5 and 15 per cent.
There has been growing concern from economists that the scheme could create a new housing bubble, with not enough being done to increase housing supply. The Government says the loosing of planning legislation and efforts to build more affordable housing will help push up supply as Help to Buy increases demand.
In a briefing paper published this week, the free-market think tank ASI attacks the Government for not taking up more radical ideas to address supply side constraints such as releasing limited amounts of farm land and abolishing mandatory affordable housing quotas.
It says: “What such solutions have in common is that the obstacles to their implementation are political and regulatory, not economic.
“Viewed thus, Government is not the solution to the housing crisis: Government is the housing crisis. With credit as inexpensive as it is today, injecting additional credit which is still less expensive does not seem a prudent or particularly effective long-term solution.”