The first stage of the Help to Buy scheme has been extended until 2020.
Speaking on BBC Radio 5 live’s Wake Up to Money programme Posen said: "I find this whole initiative largely mistaken by the Treasury.
"The idea of pumping up credit for middle to upper-middle class people to spend more on housing, when people have already spent too much on housing, is dysfunctional.
He felt the gap between London and the rest of the country was becoming an increasing concern.
He added: "We need a distinction between housing policy and mortgage policy, and we need affordable housing in the great cities of the North.
"London is now semi-detached from the rest of the country. There's a perception that it's just pockets in Kensington or Chelsea, but increasingly the homes in zone two or zone three are going out of the price range of normal people."
It was also discussed how the Bank of England need to get tougher with the biggest UK banks.
He said: "There now has to be a top-down explicit statement that our bias is towards market solutions, not cosy conversations with banks.
“Saying that the Bank of England is neither the friend, nor the enemy, of our banks."