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Less talk and more action to prevent a housing crisis

Dr Vince Cable didn't get where he is today by looking on the bright side.

PROPHESY OF DOOM: Vince Cable has said there is a chronic imbalance between supply and demand in the housing market and that the latest bubble could be catastrophic. Picture: Getty
PROPHESY OF DOOM: Vince Cable has said there is a chronic imbalance between supply and demand in the housing market and that the latest bubble could be catastrophic. Picture: Getty

The Business Secretary has a reputation as a prophet of doom that is second to none. Less admired is his willingness to chat away about disasters caused by the government of which he happens to be a member.

The minister has a knack for behaving as though the coalition has nothing much to do with him. Unless rank incompetence can be traced to his door, as in the Royal Mail fiasco, Dr Vince sounds like a bystander. This is handy for his ambitions, perhaps, but less useful for the rest of us.

He acquired a reputation for describing the quickest route to hell via handcart during the financial crash. Since the mantra "We can't go on like this" was not far off the mark, Dr Cable brought credibility to the coalition's early days. Whether he has made much since of his role as a lugubrious guru-in-waiting is another matter.

This minister offers prophecies, but little else. Sometimes he ignores his own predictions, even when he turns out to be right. Campaigning against the Tories before the 2010 election, he warned constantly that a crash course of austerity would choke off recovery for years. In office, he set to work to make sure this was the case.

Dr Vince will give you a fine diagnosis, in other words, but don't turn to him for a cure. For some reason his hands are always tied. If the minister tells you there is something deeply amiss, yet again, with the housing market in Britain you can respect his analysis. But you will wait in vain for him to set a course of action.

This time around Dr Cable has told The Independent that home ownership has become unaffordable for people on middle incomes, that there is a "chronic imbalance" between supply and demand, that a vaunted recovery in the property market is making matters worse, and that the latest housing bubble could be more catastrophic than its predecessors. This minister does not waste his breath on cheery news.

He makes a telling observation, however. In the mid-1990s, the average house price was three times average earnings. At the height of the last boom, just before the financial crash, the multiple exceeded six. Now, with banks and building societies continuing to report upward movements in prices, the cost of the average house in Britain is 5.5 times average earnings.

Worse is the fact that this market is not simply beginning to run out of control; it is also being distorted, and distorted grotesquely, by prices in London. The cost of the average house in the English capital has risen by 18% over the past year to stand at £362,699. The average in the rest of the UK is £178,124, a 9.2% increase. The Tory part of the coalition is not distressed by any of this for the simple reason that it enhances the mood and the paper wealth of people who might vote Tory. The subsidies in the Right to Buy scheme devised by George Osborne, the Chancellor, with its guarantees for 95% mortgages, have the same political intent as the "unlocking" of pension pots. They create the appearance of prosperity and growth when these things are not being supplied through wages or savings.

Mr Osborne can claim, as he did before the Treasury Select Committee recently, to be keeping an eye out for problems in the market. He can deny that Help to Buy is inflating and distorting prices. He can even pose as a politician whose only interest is in tackling the housing shortage identified by Dr Cable as a classic supply and demand problem. The motives of a Chancellor who has obstructed all other routes to growth remain clear.

What follows from Dr Cable's dismal tale? The largest part of the crisis involves a generation that has been dispossessed utterly. Ignored by a Chancellor who panders to pensioners and the over-50s, squeezed by a fragile labour market, saddled with debt, deprived of those pensions, misled over education, denied the chance to own homes or (if they must) assets: those in their twenties and thirties have seen a long-promised future disappear.

Their role now is to supply the housing demand from which others can profit. Mr Osborne's changes to pension rules will no doubt revive the buy-to-let market, for example. For as long as it lasts, that will be a boon for middle-aged and elderly investors. Inevitably, they will find their customers among the younger people for whom the first rung of the ownership ladder is out of reach.

And what of those who attempt to manage that 5.5 multiple? As Dr Cable would no doubt put it, that figure is clearly unsustainable. Experience tells us as much. When interest rates begin to rise again - once the 2015 General Election is out of the way, perhaps? - familiar patterns will begin to repeat.

Rates are as low as they have ever been. As the minister also likes to say, this can't go on. But the consequences of rising mortgage charges are also familiar. The difference this time is that wages have been depressed for years. People who have paid 5.5 times earnings can barely sustain the burden as it is. Even a small increase in rates will therefore be murderous.

Then there is the great city of London and its economic ecosystem. Last December, Dr Cable observed that the metropolis is "becoming a giant suction machine draining the life out of the rest of the country". That phenomenon is only amplified by the lunacies of the London property market. Average household earnings in the city are at least 15% above the most prosperous regions elsewhere, but house prices are double the UK average. That too is "unsustainable".

More houses are needed. What kind of houses and where? Tales of former council properties in London selling for half a million are now commonplace. That phenomenon scarcely represents a market solution. Meanwhile, the right to buy has depleted or destroyed social housing the length and breadth of the UK. Patently, however, the private sector cannot - or will not - solve the supply and demand problem.

Clearly, the obligation on builders to take account of social housing is having only a trivial effect. Those same builders are less than keen to take on brownfield sites when better profits are to be had from virgin land. Mr Osborne's subsidies have fuelled prices - though he would deny it - yet made no serious dent in the backlog of people desperate for a home of their own. One disastrous miscalculation has followed another.

Given the kind of money the Chancellor has used to inflate the market artificially, councils could build council houses. There's a thought. It would count as a quaint solution and it would not solve every problem. But as Dr Cable says, plaintively, "We must build many more houses - that and only that is the solution to our housing problem."

If all the market can provide is another absurd bubble, what would a sensible government do? No doubt the Business Secretary is ready to advise.

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