The chancellor, Philip Hammond, is lining up another £10bn to extend the “help to buy” programme first launched by George Osborne in 2013, which has already sucked up £10bn of taxpayers’ cash. Yet a report from Morgan Stanley – not usually the type to stick the knife into a flagship government policy – lays bare how this colossal sum has been almost entirely wasted.

Those billions have not helped buyers. The money has gone almost entirely into the pockets of the giant housebuilding firms, which have raised the price of developments by almost exactly the amount made available by the government. All it has meant for first-time buyers is more misery – by pushing up house prices.

Help to buy works by giving aspiring homeowners an interest-free government loan worth up to 20% of a property’s value – if the buyer opts for new-build. The idea was that it would provoke a wave of new building.

But the Morgan Stanley report, headlined “The help to buy premium – and its unintended consequences”, drily unpicks the data, revealing how the beneficiaries have been the major developers. Researchers compared the price of new-build houses in 2013, when the scheme began, with the price of existing or “second-hand” houses.

There has always been a small premium for new-build; people will pay extra for spanking-new kitchens and bathrooms. But since 2013, that premium has rocketed. “The divergence between new-build and second-hand prices is higher than it’s been since records began,” says the report.

It says that the price of new-build has outstripped second-hand by 15% since the start of help to buy. “We are now around 5% points away from the level at which new-build prices have diverged by the full amount of the government’s equity loan (20% of house price across England).”

Of course, Morgan Stanley didn’t produce this report for the likes of me to make a dig at the government. Its interest is in the share prices of the major housebuilders. It worries that the big builders won’t be able to get away with charging a premium of more than 20% for new-builds, and that the super- profits may be coming to a close.

Make no mistake about just how much help to buy has fuelled developers’ profits. The new-build market is increasingly reliant on help to buy, with the large builders – Barratt, Taylor Wimpey, Persimmon – suggesting that about half of their volumes are help-to-buy purchases. And what a brilliant money-making wheeze it has been. Morgan Stanley says: “Help to buy (and broader house price inflation, among other things) have helped housebuilder earnings triple since its launch.”

The builders will say the scheme has, indeed, provoked some supply, but evidence is thin. Morgan Stanley says: “Though it has helped drive supply, figures provide ammunition for critics who suggest it has pushed up prices, rather than making them more affordable.”

Despite this, Hammond is preparing to bung another £10bn at the developers – perhaps to “give clarity and certainty” about the scheme – which even the rightwing Adam Smith Institute says is “like throwing petrol on to a bonfire”.

But George Osborne didn’t need investment banks or thinktanks to tell him this back in 2013 when he launched this madness. Guardian Money at the time spoke to the people at the sharp end: young people excluded from the property market. Duncan Stott of the PricedOut group was particularly prescient: “Help to buy should really be called ‘help to sell’, as the main winners will be developers and existing homeowners who will find it easier to sell at inflated prices. Pumping more money into a housing market with chronic undersupply has one surefire outcome: house prices will go up.”

But the government chooses to listen to the developers instead. Britain’s housing market is broken, and help to buy is just making it worse.

p.collinson@theguardian.com