Homes slump crisis alarms Tories

Ministers are drawing up contingency plans for an autumn rescue package designed to bolster the housing market and halt the price slide.

Ways being discussed in Whitehall to restore confidence in the market include a drive to persuade financial institutions such as building societies to enter the market on a substantial scale to buy homes for renting.

The exercise coincides with a Government-commissioned study of the long-term implications of a continuing fall in house prices at a time of high interest rates and rising unemployment. Despite official denials, Touche Ross, the leading City accountancy firm, is understood to have been asked by Whitehall to carry out a secret study into the consequences of a property crash, and whether it could precipitate a slump leading, in the worst case, to economic and social disorder.

Environment ministers, while recognising the unprecedented constraints on public expenditure, may decide to press for limited 'pump- priming' cash as an incentive to overcome building societies' conservatism about taking on the role of landlords. But Treasury ministers remain adamant that, while they share the goal of expanding the private rented sector, this is in the societies' own interests and no other incentives are needed.

The Department of the Environment is anxious to ensure that the Treasury has before it an armoury of options to consider in the run-up to the October party conference, at which activists are expected to voice continued worries about the economy. The decision to suspend stamp duty, which is reimposed this month, was taken within the Treasury and has failed

to strengthen the housing market.

Treasury ministers continue to be take a robust view, arguing that, if a low-inflation economy with steady growth is to be achieved, consumers will have to adjust to a world in which their home is not a rapidly appreciating asset. With a tough new mechanism for controlling public spending in place, there will be strong resistance from the Chancellor, Norman Lamont, for any artificial stimulus to the property market.

The prospect of limited assistance which might help institutions and consumers adjust to an expanded rented sector has not been ruled out. The Business Expansion Scheme, which has been used as an incentive by some private landlords, is due to run out at the end of the financial year, and there will be pressure within Whitehall to replace or extend it.

One ministerial source said last week: 'I believe Treasury ministers, including the Chancellor, would be worried if prices continued to fall.'

John Townend, chairman of the Conservative backbench finance committee, said: 'Houses are collateral for small businesses and the property collapse affects businesses. If we had a further 5 to 10 per cent fall in the housing market we could have a credit crunch leading to a full slump.'

The Chancellor said last week that Eurosceptic critics of interest-rate policy were 'up the creek'. But Sir Teddy Taylor, MP for Southend East, returned to the attack yesterday, saying that a boost to confidence was needed: 'The government must face up to the real issues and not abuse those who disagree with them.'

Figures issued last week by the Council of Mortgage Lenders showed that reposessions fell from 36,610 in the first half of 1991 to 35,750 in the same period this year. But cases where payments were more than six months in arrears leapt from 221,900 to 305,140. This is more than 3 per cent of all mortgages.

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