Speaking to the Treasury Select Committee today, Jonathan Portes, director of the National Institute of Economic and Social Research (NIESR), said that FirstBuy Direct was a measure that would “exacerbate economic distortions and make things worse over the long run”.
He said: “House prices in the UK are too high and that has all kinds of damaging economic and social impacts. The main financial impact of giving help to first-time buyers is to pump extra money into the demand side and boost house prices. That’s the last thing future first-time buyers or the economy as a whole needs.”
His view was backed by Roger Bootle, managing director of Capital Economics.
When asked by TSC chairman Andrew Tyrie what housing measures he would have introduced, Bootle said: “I certainly would not have done this scheme to boost the position of first-time buyers.
“This is simply increasing demand and in the process doing nothing at all to ease the housing shortage in this country. There might well have been more aggressive moves that could have been made on the planning system. This is a supply problem. If we want to ease the shortage of houses, we’ve got to make sure more houses are built.”
Ray Barrell, director of macroeconomic research and forecasting at NIESR, said the housing industry could easily be invigorated by making significant changes to planning law and, in the process, boosting economic growth in the shorter term.
He said: “We came out of the 1930s recession with a building boom based on house building. Schemes to encourage, for instance, build to let and allowing a lot more building would strengthen growth in the very short term.
“It would be quite easy to stimulate the building industry, where there is high unemployment, with significant changes in planning law.”
