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After five years bearing the brunt of the coalition’s austerity programme, young adults have finally been treated to a cash giveaway by the government. The Help to Buy ISA is the latest in a string of policies aimed at helping people into home ownership, and is likely to have a much higher take-up than the existing mortgage schemes.

Help to Buy mortgages have been in place for nearly two years, but are only accessed by those who can buy a new-build house through the equity loan scheme, or can stomach the high interest rates of the mortgage guarantee scheme that make repayments even costlier than equivalent rents. The Help to Buy ISA, by contrast, appears to be for any would-be first-time buyer who fancies some free money. The government will give savers with the ISA a bonus of 25% on their savings pot at the point they buy their first home. A maximum of £200 per month and a maximum of £12,000 in total is eligible for the bonus – which means a maximum of £3000 per person from the government.

Around 70,000 first homes have been bought with Help to Buy mortgages since their introduction in March 2013, which works out at around a tenth of the total number of first-time buyers. In contrast, the vast majority of future first-time buyers are likely to be getting government cash of some kind. It ought to be a popular move among a demographic with little to thank the government for.

But look past the appealing headlines and you find problems. Two people saving the maximum over five years would raise a deposit of £30,000, but many of those who are struggling to save in places like London would need a lot more. The Treasury has told me that the new ISA is cash-only, and it is up to the banks to decide whether to allow savers to split their annual tax-free allowance between the Help to Buy ISA and a potentially more lucrative stocks and shares one. So it is unclear whether it is such a good deal for those with more to put away. At least they’re not struggling.

Those who subscribe to this scheme are also limited to houses priced up to £250,000 outside of London and £450,000 in London. There are already very few affordable homes being built at this price in London; if house prices keep rising over the next five years at similar rates to the last five, and the thresholds don’t budge, there will be almost no homes that those who have invested in this scheme can purchase. If renters never buy they’ll never see that £3000 and they’ll have had all their money tied up on a dismal interest rate when it could have been earning more on the stock market.

The Treasury might argue that the gift gives first-time buyers a little more purchasing power in the housing market when compared to more asset-rich buy-to-let investors. But in practice all that does is let more people bid for houses, pushing the price up even higher. And we still don’t know how many budding landlords will flood the market once pension reforms kick in next month.

Ultimately, this is creating demand for property when what we really need is supply. Let’s assume that once the scheme is in full swing in five years there are 300,000 first-time buyer households using the allowance of two people – £6000 – because first-time buyers will typically need to raise at least that. That’s £1.8bn a year of public money that is going to buying existing homes, when it should be building new ones.

The truly responsible policy on which to spend an annual £1.8bn is a programme to build 18,000 social homes, making a huge difference to construction rates, which remain low by historic standards.

More social homes would bring down rents in the private rented sector, stop house prices rising so fast and reduce the housing benefit bill. Renters wanting their first home will be able to save faster and won’t need to save so much.

For the 61% of private renters who expect to buy at some point, the policy sounds impressive and it would seem churlish not to make the most of this scheme, but they should be livid with George Osborne for missing a chance to really tackle the housing crisis.

Dan Wilson Craw is a spokesman for Generation Rent