George Osborne, before he reinvented himself as Rambo, when he was still the ‘austerity chancellor’, committed Theresa May’s government to spending a huge sum to prop up the housing market. The combined total of grants, loans and guarantees devoted to helping developers and homebuyers is set to exceed £42 billion between now and 2020 (similar to the cost of building four new Trident submarines). It’s supposed to achieve two things: build a million new homes and double the number of first-time buyers. An equally important but unstated priority is ensuring that house prices continue to rise. After the EU referendum, all three targets look much tougher.

Brexit already appears to have hit house prices, which – outside London and the south-east – have not yet recovered from the post-2007 slump. Osborne was desperate to create more market activity, but while the number of new mortgages has grown since 2010 (especially for buy-to-let landlords), there are still only about 600,000 first-time buyers a year compared with 800,000 a decade ago. Over the same period, the number of households with mortgages has dropped by almost two million, the fall especially marked among younger age groups.

Osborne might take the credit for a mild recovery in house-building: it grew by one-third in five years, a rate of increase that would bring the government close to its target of a million new homes in this parliament. In March, the big house builders endorsed the government’s aim. But their share prices plunged after the referendum and have only partially recovered, with some already announcing cuts in output.

In the past, when developers have stopped building because they don’t have enough customers, governments have intervened. Labour pushed an extra £1.5 billion into building rented homes during the last recession. In the early 1990s, the Tories paid housing associations to buy 18,000 unsold properties on the open market, do them up and let them. Philip Hammond, Osborne’s successor, could do something similar. Osborne’s huge spending pot came at the cost of drastic cuts to investment in homes with affordable rents: the budget is now only £2 billion over the next five years. Hammond could, for example, announce that instead of spending more than £6 billion on ‘starter homes’ and shared ownership, neither of which will be an easy sell, he’ll put the money into below-market renting, where take-up is assured.

But Sajid Javid, the new communities secretary, would have to agree to the new programme and begin implementing it. Javid is a fan of Ayn Rand; he even showed the 1949 film of The Foutainhead to the Crossbench Film Society when he was culture secretary. According to Rand’s followers, the US government was to blame for the collapse of the sub-prime housing market in 2007: ‘It used our tax dollars to dole out housing subsidies to otherwise unqualified borrowers.’

Javid faces a terrible dilemma, as he did when he was the business secretary confronted by the Port Talbot steel crisis. Does he continue to ‘dole out housing subsidies’ to a market in which they may have little impact, or does he opt instead for even more state interference, for example by converting the subsidies into grants to build homes to let at below-market rents? Rand would presumably advise him to do neither, but give all the money back to the Treasury. Hammond’s problem of how to pay for Trident would be solved at a stroke.

Original post and comments: London Review of Books