The Press SATURDAY, JUNE 5, 1954. The Housing Loan

Press, Volume XC, Issue 27368, 5 June 1954, Page 6

The Press SATURDAY, JUNE 5, 1954. The Housing Loan

Although it cannot be claimed that Mr Holland’s review of trie Public Accounts contributed very much to the public’s understanding of the controversial issues involved in the Government’s £ 12,000,000 housing loan, it is easier now to see the force of his argument that the transaction should be considered in relation to the national finances as a whole. The loan is an expedient, entailing certain disadvantages and certain risks; and its justification depends very much upon a nice judgment of what additional inflationary pressure the economy of the country is now capable of bearing without ill effects. Obviously, the country is better able to support such a measure of credit expansion now than it would have been three years ago, before the Government took steps to control inflation by a tighter hand on bank advances and credit generally. The Government’s indebtedness to the banking system —Reserve Bank and trading banks —is still being contracted, notwithstanding the generally higher figures on both sides of the Public Accounts, which reflect both the normal growth of population and a high level of economic activity which may or may not be “ normal ”. It is by no means certain, moreover, that this expansion of credit will be inflationary—or, to be precise, more inflationary than loans which the trading banks might otherwise have made to individuals and to public and private bodies for similar purposes or for any other purpose. By successive increases in the statutory ratio of the trading banks’ cash balances to their time and demand liabilities, and by other means, the Reserve Bank has exercised an increasingly tight control over the total of the trading banks’ advances. In spite of Mr Holland’s protestation that the banks did not have to “ squeeze ” their clients—which may well be true in the sense that no overdrafts were shortened specifically to permit the banks to accommodate the Government—it is fairly certain that the transaction has had the effect of channelling bank credit in a certain direction rather than substantially increasing its total.

Whether that is a good or a bad thing is again a matter of judgment and opinion; and this raises the question which, though fundamental to the present controversy, has been largely ignored by both the Government and its critics. That is the . undoubted fact that the country’s massive house-building programme i is itself heavily inflationary at a 1 time when the whole economy is at ' full stretch—not least because of the inordinate strain it is placing upon public services and amenities of all kinds. But the housing shorti age, creating as it does violent ’ disparities in the living conditions of i a people generally enjoying pross perity and a high standard of living, is so serious a social evil that no , government could afford to ignore i it and be guided entirely by economic logic; nor would the public, [ in general, wish it to do so. The programme to be financed by the £ 12,000,000 loan will be an—important contribution to the mastery of the housing shortage, which the present Government has attacked with vigour and success, and with far more imagination than its predecessors in office. The Government no doubt feels that it cannot finance this additional effort by increasing taxation; and there are at least some good economic reasons on the side of political expediency to support this view. It may well believe that its £30,000,000 development loan will tax to the full the capacity of the domestic loan market. And so it has been driven to the expedient of a bank loan, knowing that the consequent expansion of capital investment, unaccompanied by a corresponding increase in, real saving, wifi have an inflationary tendency. But this is not, after all, a very large injection of new credit into the economy; and its inflationary influence can undoubtedly ■ be mitigated greatly by credit control ■ policy and by Budgetary policy.. If there are causes for doubt . about the lengths” to which the Government is pushing its housing policy they lie in the encouragement given to the principle of lending up to the full value of a property. Wisely or unwisely, the Government has made home-building and home ownership possible to persons who have little or no cash to put into their properties; and it is more than a little curious that the Labour Party should completely ignore this end (which should commend itself to socialists) while violently denouncing the means. Yet in its choice of methods the Government seems to have been guided by a sound principle which it should not be reluctant to acknowledge. It believes in home ownership, and it is trying to bring home ownership within the reach of persons who could not normally afford to own their own homes. If these persons could offer security they could finance their homes as many others have done—by bank overdraft or loan. The Government, in effect, is acting as guarantor of the bank overdrafts of some 6000 prospective home-owners, who will pay the same rates of interest and other charges as those who have financed their home ownership by their own efforts. There is no reason why these persons should have the additional advantage of the “ nominal ” rate of interest which the critics of the Government see as the great advantage of Reserve Bank financing. Criticism of the method adopted by the Government in making these arrangements possible cannot be divorced from criticism of the purpose, which is to relieve the hardship caused by the housing shortage. Whether the loan should come from the Reserve Bank or the

trading banks is a minor and largely academic consideration, although it has provided Mr Nash with a convenient excuse to disregard the main issue. It may be surmised that the real cause of the Labour Party’s alarm is not the danger of additional inflation but the fear—perhaps the conviction—that the Govemrpent is surely overcoming the housing shortage; and as the Opposition party, Labour has a vested interest in this particular kind of misery.