In a speech at the Labour party conference, Balls joined Liberal Democrat business secretary Vince Cable and former Bank of England governor Mervyn King in criticising Chancellor George Osborne’s flagship scheme.
Balls said the government must take immediate steps to increase the supply of housing in the UK or the scheme would price first-time buyers out of the market completely.
“We are right to be concerned that the government is boosting housing demand – with a taxpayer mortgage guarantee on houses of up to £600,000 – while doing nothing about the supply of housing which has fallen to its lowest level since the 1920s,” he told the audience in Brighton.
“George, it’s basic economics. If you push up housing demand, but don’t act to boost housing supply, all that happens is that you push house prices up and up. And the end result is that the very people your policy should be helping – young first-time buyers – will find it even harder to get on the housing ladder.”
Balls later said the Labour agreed with proposals made by the IMF to bring forward infrastructure spending and build around 400,000 new homes before the end of the current parliament in 2015.
“But conference, we can’t rely on George Osborne to do the right thing,” he added.