LONDON (Reuters) - Britain's plan to cut taxes and offer incentives to first-time buyers is sure to fail and smells a bit of Ponzi.
Britain this week announced a 1 billion pound package of measures including eliminating a 1 percent tax paid by buyers of houses costing less than 175,000 pounds and a program to give interest-free 30 percent down payment loans to first-time buyers with moderate incomes.
Ponzi schemes, called after a famous fraudster, attempt to use the money of new investors to pay unsustainably high returns to existing ones, but at their heart have no actual business or productive enterprise.
While by no means a fraud, the plan will in effect suck money from those not on the housing ladder or at its bottom to support those further up, as well, significantly, as the banks who've loaned them money. The plan also meets the Ponzi test in that it is an attempt to keep an overdeveloped and underproductive sector of the economy going.
It would be far better to acknowledge that British housing prices are much too high and likely to fall substantially from here, and to try to do what little can be done to soften the side effects.
Attempting to keep the unstable enterprise afloat by luring new buyers is a strategy headed for failure, and where it succeeds is bound to be a disaster for any unfortunate buyer who takes it up.
"Encouraging first-time buyers to enter an over-valued and sharply falling market seems like an odd thing for a government to be doing," said Ed Stansfield, a London-based economist at Capital Economics.
