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Brown’s debt to society

Wednesday, 9th April 2008

The Spectator on Gordon Brown's mountain of debt

There is, of course, an obvious and unsettling parallel for what is happening in the British property market: America’s subprime disaster, in which thousands of low-income homeowners have defaulted on mortgages as their initial, ‘teaser’ interest-rate periods come to an end. Yet still there are people who believe the British housing market can somehow remain immune from what is happening in the US.

One such individual is Alistair Darling, who in February tried to reassure us that the British housing market could not possibly suffer big prices falls because, unlike in the US, ‘demand outstrips supply’. At the time it seemed an extraordinary remark for the Chancellor to make; it was tantamount to him boasting that his government’s planning system had created a chronic shortage of housing.

But far more worrying were the Prime Minister’s remarks when interviewed by the BBC’s Nick Robinson this week. Gordon Brown’s response to the news of a slump in house prices was first a weak reassurance that all will be well as long as he remains ‘vigilant’ — followed by an announcement of the extension of a scheme to encourage people to buy homes as part of ‘shared equity’ schemes, where a buyer purchases a share in a house and rents the rest from a housing association. What he failed to explain is why on earth people on modest incomes would want to invest in a sliding housing market, knowing that their investment is likely to diminish rapidly in value over the next few months. Those with more than a passing knowledge of the last housing slump will recall that some of the most badly affected properties were precisely those in shared equity schemes, which languished for sale long after the rest of the housing market had recovered.

The downturn in the housing market is the moment Mr Brown must have been fearing above all others. When still shadow Chancellor, he staked his reputation on bringing about ‘an end to boom and bust’ — a slogan with electoral traction, given that in 1997 the early 1990s slump was fresh in the minds of the middle-class home-owners which Labour needed to win over. It has been clear for several years that he failed to bring an end to boom — house prices have nearly trebled since 1997 — but few were minded to complain about that.

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CG

April 13th, 2008 10:40pm

Excellent article, of the thousands of articles published on housing over the past months so few have taken a measured and rational look at the downside to house price inflation

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