Tuesday, November 22, 2011

The Government as mortgage provider

The government is now stepping in as a mortgage provider and the taxpayer will be taking the risks of the loans, because we all know how well that worked out in the USA. Ah but this will be different, rather than lending money to those who won't be able to pay it back they'll be using very tough criteria to determine who they lend money to.

So wait, if the government are only going to lend money to those whom they judge will be in a position to pay it back why aren't the banks prepared to lend this money to them? One could argue that the banks are currently being too cautious and having been burned once are reluctant to lend out the percentages needed for first time buyers despite the injection of cash from the government, but this is hardly going to encourage the banks to join in.

As an additional step the government is also looking to subsidise house building on land deemed economically unviable or those struggling to build on land for which they already have permission. In theory it's this latter approach that holds more promise. By building more houses supply will hopefully increase to match demand which will in turn lower house prices. In turn that means the amount the banks are willing to loan out will become a greater percentage of the house price and enable more people to purchase them... which in turn will push up demand, which will increase prices if supply isn't met. Perhaps an answer lies in prefabricated buildings.

It is already (or at least was) the case that the Housing Corporation demanded that 25% of new homes it funds to be prefabs; yet that only accounted for 3% of the total housing being built. Will this new subsidy have the same criteria placed upon it? I doubt it, but this is an excellent chance for the government to get houses built quickly; to create more jobs in prefab factories and as demand will increase (as we're living longer and keeping our housing) these factories will only prosper.

As an aside this could lead to a new way of building houses - no roads. Build the prefabs and connect them with wide pathways (suitable for emergency and delivery vehicles to access with pull-ins to pass). Then off-site attached to the road build a set of garages one for each house capable of holding two cars and build a guest car-park next to it. Ensure it's well-lit, alarmed and the police patrol regularly. As residents are forced outside their homes beyond getting into the car they're more likely to meet and integrate with their neighbours; the kids can play in the green areas without cause for concern from busy roads.