The Tories' Secret Weapon: How Osborne Used Housing to Win the Election

I first got an inkling that the Conservatives might scrape back into Downing Street a couple of years ago, over lunch during a trip to the US.

With me was a colleague from a British newspaper and my foreign-born editor, when the topic of the housing market came up as we ate Southern soul food in a restaurant in Georgetown, just outside Washington DC.

My editor was worried that the housing initiatives put in place by the Coalition such as Help to Buy gave a hand-up (and hand-out) to private buyers, combined with a failure to build anywhere near enough private or public homes to meet demand would fuel an artificial spike in prices.

My British colleague explained that this was very much the strategy as, history showed, voters tended to respond kindly to politicians driving up the value of their homes. In 1988, the Conservatives had abolished of double mortgage tax relief that eventually led to a crash.

How could a democratic government possibly do something so cynical?

Our foreign dining partner was outraged. How could a democratic government possibly do something so cynical? Us Brits look at each other, raised our eyes and said that was simply politics in the UK – short term advantage over the long term good.

It was clear back in 2013 that the policy would help the UK economy grow more than many other European countries just as it was clear that it was going to put some political wind in the sails of the Conservatives the scheme’s architect, Chancellor George Osborne. 

That’s because when house prices rise, people feel good. There is little doubt in my mind that this helped the Australian Tory campaign strategist Lynton Crosby outflank the his American Labour counterpart David Axelrod when it came to producing a winning electoral message.

If boom turns to bust, as they often do, no one will recall how it happened or remember who to blame

There was little point in warning that the government was encouraging private households to take out debt to fuel economic growth at the same time that it was implementing austerity. If the boom turns to bust, as they often do, no one will recall how it happened or remember who to blame.

As house prices rose, more people could see themselves being caught by Labour’s proposed mansion tax on homes worth more than £2 million. Even though the tax might be just £2,000 a year – about the same as Council Tax in London – it was another vote winner for the Tories. I know someone who swung over to them because of that policy.

Of course, the Tory economic offensive went wider than the housing market. They worked tirelessly to hammer home the point that Labour caused the last recession and voters should not hand to the keys back to the people who crashed the car.

Those of us in DC who had just spent time with officials at the IMF warning about the dangers of another financial crisis, felt what Osborne was doing to get him over the line at the election bore an uncanny resemblance to what had gone on in the US jus a few years before. The origins of the 2007 financial crisis lay in reckless financial innovation on the back of debts taken out by some of the poorest people in America – the so-called sub-prime.

Cue to the UK in 2013 and there was little sign that lessons had been learned. Prices were high and rising and all the government was doing was to come up with initiatives to help people take out debt they couldn't really afford. As the government’s website explains, lenders will be supported to lend up to 95% of the value of the property but as a borrower “you will still be fully responsible for your mortgage repayments.” So, if you have a 5% deposit, you will need to take out and pay back a 95% mortgage, regardless of the government’s support.

It’s a laudable ambition to help people own their own homes but the policy has to be part of a package. If governments boost demand they have to increase supply, either by spearheading housebuilding or establishing incentives for the private sector to do the job. Otherwise prices go up.

And go up they did. By 15% since 2013 in the country and by 33% in London, encouraged by the government saying it’s OK to get up to your eyeballs in debt. It’s not the whole reason the Tories are back, but it’s one reason. That was the inkling we felt back then over pulled pork, fries and 'slaw on that Spring afternoon in April 2013.

More about the author

About the author

Phil has run Clarity Economics, a London-based consultancy, since 2007 and, before that, was Economics Correspondent at The Independent.

Phil won feature writer of the year Work Foundation Work World media awards in 2009, and was commended by the Royal Statistical Society in 2007.

He is the author of Brilliant Economics and The Great Economists.

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