More Manna From Heaven for Britain's Lucky Builders

(Bloomberg Gadfly) -- Property prices are falling in London for the first time since the financial crisis. That's welcome after years of bubble-like valuations, even if the reason for the slowdown -- Britain's potentially messy exit from the EU -- is no cause to celebrate. Across the country, house prices are starting to moderate, narrowing the gap at last with feeble wage growth.

But Theresa May thinks more must be done. Or at least she's desperate to counter the youth appeal of Labour party leader Jeremy Corbyn. The Prime Minister wants to chuck another 10 billion pounds ($13.3 billion) at the property market by topping up "Help to Buy", a loan-subsidy program designed to help young people afford their first home.

If history is a guide, the scheme will prop up demand, support prices and fatten house-builder profits. Will there be a huge burst of new home-building? Probably not. The share prices of Barratt Developments Plc, Persimmon Plc and Crest Nicholson Holdings Plc rose by about 3 percent, as investors bet on even more "super-normal" returns in a distorted market, to borrow Shore Capital's description.

What the scheme's extension won't do is help make British property overall more affordable. That politically driven 10 billion pounds looks like a waste.

The cure for the U.K. housing market is more supply, not more demand. It's true that Help to Buy's introduction in 2013 and a market rebound gave developers the incentive to build more, with new starts in 2016 at their highest since the crisis. Yet since 1970, construction has fallen while prices have risen, according to Dr. Christian Hilber, of the London School of Economics. Help To Buy isn't doing much to close this gap.

Fixing under-supply isn't easy. Some point the finger at planning constraints, arguing there's a need to reform land policy such as the protected Green Belt around London. Others blame house-building companies with little incentive to eat into their own profit margins by flooding the market with new supply.

Reforms take time, and might be unpopular with older property-owning voters who love high house prices and green space around cities. Simply taxing house-builders that don't build fast enough might be a little clumsy.

Some would argue that any measures to boost demand, however wonky, should be welcomed in the current environment. A market correction would see builders retrench, jobs suffer and consumers less able to spend. If Brexit turns out to be worse than expected for the U.K. economy, though, it's hard to imagine the people who need Help To Buy the most -- those struggling for a 5 percent down-payment on a house -- will be spared. 

The hard-hat crowd and their lucky investors will be far better insulated.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story: Lionel Laurent in London at llaurent2@bloomberg.net.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net.