New Affordable Home Scheme is Guaranteed to Backfire

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Latest Scheme

The latest scheme come from the UK with a Government Pledge to Increase the Number of Affordable Homes.

Details

  • A new shared ownership model would see the minimum initial share to buy in a property reduced from 25% to 10%.
  • People would also be able to buy additional shares in their home in 1% instalments with heavily-reduced fees. 
  • The £12.2bn investment, listed in the Budget, includes £700m for new homes.
  • The shared ownership model will also include a 10-year period for new shared owners where the landlord agrees to cover the cost of any repairs and maintenance to the property.

“Today’s announcement represents the highest single funding commitment to affordable housing in a decade and is part of our comprehensive plans to build back better,” said Housing Secretary Robert Jenrick.

For starters £700m is not much. 

That’s actually a good thing because the less money thrown at this boondoggle, the less money will be wasted.

US Comparison

The US has Fannie Mae, Freddie Mac, Ginnie Mae, the FHA in addition to hundreds of programs at the city and state level all designed to create affordable housing.

Not a single program has ever worked and none of them ever will. 

The very act of getting people to buy homes creates more artificial demand and even artificial shortages. 

There’s another boom in the US right now thanks to excessively cheap mortgage rates. 

That did not make homes more affordable. Prices rose more than any interest rate benefit.

The UK’s approach in which the landlord agrees to cover the cost of any repairs and maintenance to the property is 100% certain to be reflected in the cost.

Who Benefits From This Madness?

The answer is banks and builders. 

The banks make more loans, pass them off to Fannie Mae, Freddie Mac, or Ginnie Mae and taxpayers are on the hook. 

Builders love the programs as they build more homes. 

In the UK scheme the builders will either be compensated for the cost of repairs by the buyer or the government or some combination. 

There is no free lunch for the buyer or the taxpayer in any of these schemes.

Great Recession Irony

In the wake of the Great Recession, home prices crashed. 

Neither the Fed, the banks nor the US government was happy with prices that were the most affordable in a decade. 

They all acted to force up the price so that new affordable home ideas surfaced, now actively promoted by the Fed, just not by name.

Mish 

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, Mish Talk reports

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