Why Britain should adopt Singapore's approach to affordable housing

Even as late as September 2007, after the financial crisis had begun, Mr Osborne was still promising to match Labour’s spending plans pound for pound. It was only after the public finances began to implode that the Tories changed tune. Mr Osborne gave up trying to compete on spending, and promised to “deal with the nation’s debts”.

By the time of his Mais lecture shortly before the 2010 election, the Chancellor’s transition from reluctant Labour clone to deficit attack dog was complete. “Let us move from an economy built on debt to an economy that saves and invests in the future,” he said. It wasn’t just public debt he was concerned about; it was the whole shebang of Britain’s high debt economy.

What very soon became apparent, however, is that it is virtually impossible to achieve growth without money and credit expansion. The eurozone crisis further compounded the problem by depriving the UK of its biggest source of external demand and prompting further credit contraction in the banking sector. With chances of a second term slipping away, something had to be done. First came “funding for lending”, then “help to buy”, and finally “forward guidance”. Together, these initiatives have succeeded in re-starting credit growth, and by extension the mortgage and housing markets.

This has led some to charge Mr Osborne with abandoning his original economic strategy and engineering a surrogate, Keynesian stimulus. Actually, claims the Chancellor, it’s nothing of the sort. No, this is “monetary activism”, which was both envisaged and is perfectly compatible with a conservative agenda on fiscal matters.

One thing it is not about, however, is “paying down the nation’s credit card”. On the contrary, it’s about charging it up again. The Chancellor seems to have shifted from an “all debt bad” position to a “public debt bad, private debt good” approach. I’m not saying this is necessarily wrong. But I’m sceptical that the new “macro-prudential powers” the Bank of England has been given to limit any perceived excesses in credit are an adequate safeguard. Do we want to see a return to the sort of mortgage queues and credit rationing that the exercise of these powers implies? This would be only to limit demand and crimp growth, and seems to be no better an approach to the problem than mansion and land taxes.

For both good and bad reasons, the Government has ducked the obvious solution of meaningful planning reform, but there are other approaches to expanded supply that could work. One would be for the Government to embark on a major programme of house-building. This could be done in a fiscally neutral, self-financing way by adopting the Singapore model, where all public house-building is for private sale – the apparent contradiction of state activism for free market purposes.

In any case, drifting back to the pre-crisis model of ever rising levels of household debt cannot be an option.

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