After the sub-prime bubble in the United States, one would assume that policymakers have learned that governments need to be cautious about encouraging the accumulation of debt in specific areas of the economy. Not in the United Kingdom, it seems. Ed Balls, the Labour Party’s shadow chancellor, presented his plan to boost the supply of affordable housing at his Party’s conference in Manchester on Monday.
While the specifics differ, the plan would set in motion in the exact same patterns of behavior as the Community Reinvestment Act and other pieces of legislation, which fostered home ownership in the United States. Without sharing the details, Mr. Balls wants to use the revenue from 4G auctions to build 100,000 new affordable homes – “creating hundreds of thousands of jobs and getting [British] construction industry moving again.” The shadow chancellor also proposed a stamp duty holiday for first-time buyers of properties up to £250,000.
Even if one ignores the fiscal implications of his plan, the idea to throw more money at the construction sector is an awful one. Firstly, the plan is not aimed at helping poor people – the UK already has a very generous supply of social housing, larger than Sweden or Denmark. And it’s not clear that the country suffers from an absolute shortage of housing, as some 450,000 housing units are unoccupied, according to a 2010 research project done by the Guardian.