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Government allowed investors to price out generation

The briefing was requested by the then Prime Minister Tony Blair in April 2004 after he had read the article by Martin Wolf in the Financial Times ‘A housing collapse draws nearer’ which highlighted the author’s concerns about a bubble in UK housing and its vulnerability to a price correction.

Unlike government and Treasury public statements since 2004 and up to the present day, this briefing demonstrates the government’s knowledge that the new Buy-to-Let sector was leading to the substantial displacement of First Time Buyers from the UK housing market.

Key text from the Treasury briefing includes:

"Another notable feature of the housing market has been the decline in the proportion of first time buyers (FTBs) taking out loans for home purchase. By the end of 2003 the proportion of loans for house purchase to FTBs fell to an all time low of 28 per cent, well below its post 1993 average of 46 per cent."
"FTBs have become ‘deposit constrained’… This may impinge upon rates of household formation. If FTBs are unable to afford a home then they could remain within their parents household for longer than desired"
"However, the falling numbers of new entrants has not had the expected cooling effect on the housing market as the growing trend of buy-to-let may have taken up much of the slack."
"The Buy-to-Let market has seen significant growth in recent years … The increase in activity may have the effect of crowding out FTBs, as typically, rental properties and those being sought by FTBs often have the same characteristics."

Yet despite this, there was no indication from government about what steps could be taken to address the issue, reduce the advantages enjoyed by Buy-to-Let and help First Time Buyers.

Commenting on the briefing PricedOut spokesman William Griffith said:

"As early as 2004 the Treasury recognised that Buy to Let was having a significant damaging impact on First Time Buyers, yet no changes to government policy were made"

"This shows a government more than happy to benefit from the feel good effect of rising house prices yet unconcerned about reigning in the negative social consequences."

"Government public statements to be helping First Time Buyers were in private being undermined by the government’s failure to act on its own analysis"

"There was a red hot and overheating UK housing market when this briefing was written. The role of the government should have been much greater caution – seeking to slow obvious excesses developing in mortgage lending and the Buy-to-Let sector."

"The Treasury’s failure has caused great damage to the UK economy and to society at large – damaging First Time Buyers and Owner Occupiers alike."

"Sadly little seems to have changed, even after all the damage inflicted on the UK speculative housing investment. The Treasury is currently planning further tax breaks to Buy-to-Let investors, which can only further push First Time Buyers away from the dream of ever owning their first home".

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0 thoughts on “Government allowed investors to price out generation

  1. Major Landlord says:

    This is a fascinating revellation that gives real insight into the desperation of Labour to cover up the true state of the economy thanks to their neglect. But the briefing in question actually missed the key point: it was not Buy-to-Let per se that led to the shortage of affordable housing, and fuelled hyper-inflation: it was in fact the Labour government’s deliberate laissez-faire attitude to bankers and lending that caused the real damage.

    For many years, and well before 2004, I was one of the (enlightened?) few who were saying that lenders were behaving irresponsibly in lending to both private buyers and investors without any of the checks that were once de rigeur in the mortgage market. When lenders started employing sales teams and paying commission to mortgage brokers, and major estate agent chains started offering “packaged” buy-to-let property sourcing and management services with projections of income and capital growth, and scum like Inside Track were allowed to set up in business, anyone with any sense could see how it would all end. In 2004 I stopped buying in the UK because I knew house prices were getting out of control.

    It’s a fundamental economic principle that, if you increase money supply, you fuel inflation. House prices shot up not so much because of demand, but much more because both private buyers and investors were allowed to borrow on a scale that bore no relation to their true earnings or ability to repay. When greedy estate agents saw buyers with pockets bulging with cash, they were only too happy to push asking prices up as fast and as far as possible. Illustration: I bought a house in January 2003 for £102,000. Two months later, the same agent tried to sell me the identical house next door for £115,000. I told him where to go.

    Years of Labour neglect of our economy, and particularly our balance of trade and exports, left us too dependant on earnings from the financial sector. That’s why Brown (then Chancellor, now PM until May 6) chose to let bankers get away with murder. That he could not see, or chose to disregard, the fact that his chickens would one day come home to roost, is a graphic illustration of his disconnection from reality, and why 5 more years of his and Labour’s utter mismanagment will destroy this country.