Why the government's housing bail out won't make a big impact

While many commentators will reach for the well worn Titanic deckchairs metaphor, the verdict on this package should be 'mostly harmless.' Few of the measures will have a drastic effect, but at least none are actively disastrous. The real problem is the obvious one - the lack of cash. But the government deserves credit for resisting the urge to divert all available funds to supporting existing homeowners facing difficulties at the expense of long term investment in the development sector.

The three mortgage rescue options show some signs of genuinely imaginative thinking, which can only be welcomed. But as always the government will insist on stringent means testing before granting such largesse. The danger is that the eligibility assessment processes, involving local authorities, RSLs and presumably lengthy Treasury guidance may render the schemes so slow and unwieldy that they fail to rescue people in time, especially if the banks keep repossessing within two to three months of arrears. But then with not much actual cash to go around the numbers of people helped will need to be kept down - £200m will only cover 1,000 complete rescues of £200,000 each. The ISMI reforms will equally be very welcome to those who benefit - and may just save the odd Labour MP in a marginal seat.

The Homebuy Direct proposal is probably the best of the bunch - at last, a shared equity product that we might actually understand. You pay 70% of the sticker price of a new build home, the government and the developer fund the remaining 30%. No rent, no complex equity charges at least for five years. It's a good idea, but it won't achieve the aim of reviving a falling housing market. First time buyers will not return until they think the market has bottomed out (why would they?). And anyway, first time buyers have become largely irrelevant to the housing market, as few have been able to afford house prices for ages. The bull market has been driven by buy to let investors who are now fleeing in droves and there's nothing for those poor dears in this package. The government should not be throwing good money after bad by attempting to revive falling prices - house prices have been way too high for ages. Even a 50% correction - enough to make the Daily Mail call the coming apocalypse - would only get us back to the level of about 2001, when the affordability crisis was already underway.

The 'extra' £400m for social housing is a bit of a joke. The Housing Corporation will struggle to spend its existing budget this year, as section 106 schemes with account for half of all new affordable homes come to halt.

Having made such a mess of the stamp duty thing last month they had to announce something, but don't expect this to do much either. The far more extensive stamp duty holiday of 1991/2 had almost no impact on trading volumes, let alone prices.

The 'extra' £400m for social housing is a bit of a joke. The Housing Corporation will struggle to spend its existing budget this year, as section 106 schemes with account for half of all new affordable homes come to halt. Bringing next year’s money forward may help a few struggling RSLs survive, which is no bad thing, but it won't make a blind bit of difference to overall supply levels.

This is the real problem with the whole package - there's no real money in it. It's effectively nicking the HCA's budget for the next two years to spend now. If the new agency is going to achieve anything it will need serious funding, which will mean someone in the department for communities and local government having the guts to tell the Treasury that we need to reopen the entire comprehensive spending review settlement. I'm not volunteering for that conversation, but there could be neat way of making it pay for itself. Rescuing homeowners in real distress is a political no-brainer, but it would surely be reasonable for this logic to be followed through next time house prices go through the roof. If the taxpayer is there to bail out any homeowner who looks like making a loss, perhaps the taxpayer deserves a share in the unearned windfall of house price gains? Capital gains tax on houses anyone?