In the Budget, George Osborne offered further help to the housing market. Shared equity loans for first time buyers buying any properties and mortgage guarantees for those buying newly built homes.
Ignore Ed Balls wails about the latter helping rich bankers buy second homes because it won’t. Even the Treasury’s briefing note, which precedes a consultation and formal regulations, state that any home bought must be “occupied” by the purchaser. However, there have been, legitimate concerns raised over whether the policy will simply pour petrol on the dying embers of the UK housing market. It won’t do that,
The UK housing market is dying. Ignore the expensive enclaves of London and the affluent Home Counties where very few people buy very expensive houses. Look at the ordinary suburbs, like Chingford where I
live, or Dagenham or Bexley. Or the less affluent bits of Kent and Essex, or the Midlands or the North. Here you will find house prices still stuck below their peak of 2007. Which is a good thing by the way.
Never forget Labour allowed a decade long boom in house prices from 1997-2007 which saw the average house price across England and Wales almost treble, from £63,000 to £177,000. In London they more than trebled, going from £107,000 to £350,000, peaking early in 2008. When the Left bleat about the lack of “affordable housing”, remind them of why housing is “un-affordable”. (Land Registry data, available here.)
Across all of England and Wales, those peak average values fell back to about £150,000, before seeing a bit of a “dead cat bounce” back to a little to around £160,000 early in 2010, where they have stuck. Whilst they dropped in London to just under £300,000 as the froth came off the market, the average is now almost back to where it was in early 2008. But that’s driven largely by those expensive enclaves. In the ordinary suburbs, prices have not recovered either. Anecdotally, they are actually still drifting down.
But we need more homes. Population is rising, many more families live in overcrowded homes than under-occupy and as we seem to expect to own – or at least occupy – our own homes as young adults rather than sharing, demand out-strips supply. Others have written about how this is down to a failure of the planning system to release enough land, but there are around 400,000 homes with planning consent, but as yet, un-built. That is why the Help to Buy scheme will not result in another bubble.
It is probably heresy to suggest this, but there is plenty of funding available to build affordable homes. Over £4.5bn of grant, over £10bn of loan guarantees, £1bn pa receipts from Right to Buy sales and all the capital that can be raised from capitalising the rents charged. The reason why those 400,000 homes are not getting built is that there isn’t the demand for the market homes which underpin the delivery of those projects, and any affordable homes within them.
There are two reasons for that. One is that developers bought land in the mid/late 00s at prices which reflected the values they expected to see. Whilst construction prices have come down, that’s not yet enough to compensate for lack of demand at prices developers can afford to sell at, so developers will not commit to build. The other, which compounds this, is that whilst there are people who want to move and buy new homes, they are struggling to secure finance because the banks have all become massively risk averse.
Getting some more purchasers of those market homes to the point where they can secure a mortgage, or afford a mortgage, is crucial to unlocking those developments. As I said earlier, the affordable homes can be funded if the market homes get built and sold. Unlocking that is the key to getting the builders on site and as “there is no money”, the Government can’t just borrow and spend. So it has decided to act a little like the famous “Bank of Mum & Dad”, just on a larger scale. It will guarantee loans and in some case take an equity share. Nothing too excessive – we really are not talking Fannie Mae and Freddie Mac here – just a little help – to buy.