Posted by

Dr Adam Marshall, Director of Policy and External Affairs

27 Sep 2013

For a variety of reasons, I found myself last Saturday at an open house for a new block of flats in an up-and-coming part of south east London. The scene was tumultuous: hundreds of people, security guards in hi-vis jackets, officious estate agents, a scrum for raffle tickets conferring the coveted opportunity to reserve one of the 41 units in the half-finished building, and so on.

It was there, at ten o'clock on Saturday morning, that I realised just how divorced the London property market has become from reality. A diverse crowd of people, some local, others foreign investors, and a smattering of young professionals, fighting over the right to pay a king's ransom for a property that could only be described as 'small but perfectly formed'. Luckily, not being blessed with huge financial resources, I could just watch this bizarre scene unfold - yet it unsettled me greatly.

Much has been written in recent weeks about whether the housing market in some parts of the UK is 'frothy', or even a full-on bubble. My own unscientific research, which involves events like the launch above and liberal use of Zoopla, suggests that something worrying is indeed afoot in the south east. The government's Help-To-Buy scheme, together with Funding for Lending, have turbocharged the mortgage market and probably underpinned some of the economic momentum we've been experiencing. But I am very concerned that the second stage of the Help-To-Buy policy - which would basically guarantee 95% mortgages issued to anyone buying a property of under £600,000 - could result in a dangerous escalation in prices with the attendant 'boom and bust' consequences. Helping the housing market may be a good idea in some parts of the country, but in the greater South East it looks increasingly like a bad idea, That's why the concerns voiced by many economists, Vince Cable and some senior Labour figures have merit, and why their warnings were tacitly accepted by the Chancellor today as he handed the Bank of England implicit powers to cap the scheme.

Speaking of the Labour Party, we had an interesting time at their conference this week in Brighton. It started with a clanger for business, in the form of a poorly-thought-through policy proposal requiring companies to take on an apprentice for each foreign worker they hire.

While we welcomed some aspects of the Labour agenda, such as their support for a large-scale house-building programme, there was a worrying lurch toward the bad old days of price controls, wage controls, and expropriation. I was particularly alarmed by Ed Balls's unexpected attack on HS2 and Ed Miliband's proposal to trade off lower business rates for some against higher Corporation Tax for others. We need comprehensive action on business rates, not a 'rob Peter to pay Paul' policy that's more electioneering than anything else.

We heard a lot of electioneering in Brighton, rather than big economic policy - perhaps a harbinger of the long political dog-fight to come before now and 2015. Final thoughts on the party conference season from the Conservatives in Manchester next week.