Tuesday, September 25, 2012

Larry Elliott slams Nick Clegg's pension property plan

In his interview with Andrew Marr on Sunday Nick Clegg suggested that parents and grandparents should be allowed to draw on their pension pots to secure deposits and help young family members get a foot on the housing ladder.

Larry Elliott thinks it is a very bad idea and I find it hard to disagree with a word he writes:
This is wrong on so many levels it is hard to know where to begin, but let's start with the basic rules of economics. The reason homes are out of reach for most young people is that property prices are too high. The obvious way to allow more people to get their foot on the housing ladder is to bring prices down. Clegg's idea would have the opposite effect. It would push up prices and only help young people with well-off parents. Bad economics and regressive to boot. 
A second point that appears to have escaped the Liberal Democrat leader ... is that the value of the average pension has been slashed over the past decade. The move to defined contribution schemes coupled with falling stock markets and lower annuity rates means that someone approaching retirement will only be able to help their grown up children by impoverishing themselves. For generations past Britain has saved too little and too big a slice of investment has gone into bricks and mortar. For too long, too many individuals have relied on rising house prices to see them right in their old age. 
Clegg's harebrained idea would make all these problems worse not better.


John Minard said...

I don't see how it would push up prices - it's almost an argument against economic recovery. It might underpin prices, any increase in activity would.

It's a useful idea; fairly pointless on its own though but alongside other measures that address the lack of supply then it's got reasonable merit. Better would be a vast expansion in shared ownership housing - much better on so many levels than anymore QE.

I think we could agree that in the future, people need to spend less of their income on putting a roof over their heads and more on being happy.

Simon said...

Larry himself makes a mistake here. He says 'For generations past Britain has saved too little and too big a slice of investment has gone into bricks and mortar'. This would seem to imply that it is the buildings we are investing in. Unforunately that's not the case, we have too few houses and our housing stock has suffered from a lack of investment compared to other European countries. What we have been investing in is land, pushing its value up and up with absolutely no return whatsoever. We are literally burrying our wealth in the dirt.

Having impoverished our children in this way I suppose there's a kind of logic to move on to impoverishing our parents, but ye god's how did we ever get so stupid?