Housebuilder Redrow just announced a record year according to Merryn Somerset Webb in MoneyWeek. The number of houses sold is up 9%. Revenues are up 16%. Pre-tax profits are up 21%. And the dividend payment to the firms shareholders is up 65%. The chairman and founder, Steve Morgan is pleased and keen for this fabulous run to continue, so he has an idea. He'd like the Help To Buy scheme under which the government underwites 20% of the purchase cost of a new build home to continue forever. "If it aint broke" he says, "Why fix it?".
He has a point, H2B works brilliantly for housebuilders. 30% of Redrows sales last year relied on it which is typical across the industry. Without it, the sales number would probably be lower. But H2B doesn't just help housebuilders shift stock, it helps them shift it at high prices. After all, anyone effectively getting an extra 20% worth of loan from the state can clearly pay more than someone who isn't. Probably explains why Redrows profits are growing faster than their revenues. This government driven house price inflation is no different to the 'rent inflation' which has been caused by Housing Benefit. That to some extent, stopped when LHA was uncoupled from inflation - but it still underpins the market and sustains higher rents than would otherwise be asked (and thus higher house prices as the yield justifies it). Interesting as H2B was originally setup to solve the problem of high house prices.