Governments house building initiaitive could spell disaster!

Published ¤ 29/08/2012 09:52:59

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A government backed housebuilding boom would not deliver the sought-after economic recovery, a leading consultancy has warned, but cause prices to crash and tip Britain's banks back into crisis.

The warning has come from think tank Fathom Consulting, as ministers are believed to be preparing to announce new plans to address Britain's housing shortage.

House prices could crash againThey have been dropping hints about launching new incentives for house builders in September, with speculation rife that they could drop affordable housing requirements.

But Fathom says that despite reports of a desperate shortage of homes, demand at current prices is simply not there. It says homes are over-priced to the tune of 30%.
Philip Lachowycz, who wrote the report for Fathom, said "If there was pent-up demand for housing in the UK, then surely the private sector would step into the breach? But it has not.

"The private sector is not building houses because, at current house price levels, there is no effective demand... Housing starts have not recovered following the house price crash of 2007-2008, and are 24% below their level of a year ago.

"This speaks volumes about what lies at the heart of the problem - namely an overvalued housing market, and excessive private sector debt."
According to the report, an artificially induced house building book could cause prices to 'correct back to fair value' and fall by 30%, forcing banks to take large losses.
The report argues, "Banks would be forced to recognise their losses. In the absence of further Government intervention, this is likely to push a number of lenders to the brink of insolvency. In short, there would be a further contraction in the supply of credit."

Fathom says a better way of stimulating the house building market would be to force banks to repossess properties owned by borrowers struggling to pay their mortgages, and disclose their hidden bad debts.

It says that the effect of this would be a fall in house prices, making them more affordable again. Quantitative easing could be used to recapitalise the banks, leaving them free to lend.

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