Member Article

IPPR question Chancellor’s plans for housing

Housing measures announced in the Chancellor George Osborne’s Budget statement will aim to help first time buyers onto the property ladder.

A new ‘help to buy’ scheme was unveiled, where buyers who’ve raised a 5% deposit will be given a 20% loan to support a property purchase under £600,000.

This loan will be interest free for the first five years, and will help to stimulate activity in the construction industry.

Left-leaning think tank IPPR recognised the Government’s efforts to help the property sector along, but also questioned how much it would impact house building.

Nick Pearce, IPPR’s director, commented: “With the economic recovery continuing to stall, there was a broad consensus ahead of today’s budget that the Chancellor should provide a boost for housing and the construction sector, to help get jobs and growth going. George Osborne responded with what he hailed as a ‘dramatic’ move with the creation of a new scheme called ‘Help to Buy’.

“This new policy will substantially reduce the loan-to-value rate for prospective borrowers (to 75 per cent), while being structured in such a way as to prevent the liabilities to the government adding to the deficit (though the loans will add to public debt). For individuals and families looking to buy, this scheme will make it easier. However, it continues a strategy based on propping up – indeed inflating prices – rather than get additional homes built.

“The main question mark hanging over today’s announcement is what effect it will actually have on house building. Data published last month showed that NewBuy, the existing more limited version of Help to Buy, led to just 1,522 housing completions in the first nine months it was in operation.

“Overall, housing starts in 2012 were below 100,000, down 11 per cent on the years before and 45 per cent below their 2007 peak. This compares to most estimates which suggest we need to build an extra 250,000 new homes a year to meet rising demand. It is not clear that Help to Buy will generate additional new housing starts, beyond what would have been undertaken anyway.

“More broadly, this policy does not affect the fundamentals of the housing market. With constrained supply, pent up demand simply leads to higher prices…The Chancellor’s announcement simply perpetuates the cycle, rather than breaking it.

Mr Pearce went on to make suggestions he thinks should have been followed by the Government in Wednesday’s announcement.

He said: “There was an alternative open to the government today. It could have listened to those – including Nick Clegg and Vince Cable – who argued for higher capital investment in housing, in particular from local authorities with strong balance sheets who want to meet the housing needs of local people and can borrow at historically low rates.

“Over the medium term, the structural problems with housing policy and the housing market need to be confronted. That is partly about the planning system, but also the balance of public expenditure, 95 per cent of which goes on subsiding rents and only 5 per cent on building new homes (unlike during the post-war decades when housing building ran at 300,000 a year).

“IPPR has set out a plan for how this balance could be shifted, mobilising the energies of local leadership. Rather than further pumping up house prices (and exposing more people to the possibility of negative equity if prices do, in time, fall) politicians need to set out bolder steps that would really get Britain building.”

Debbie Taylor, head of land & new homes at BNP Paribas Real Estate, the leading property adviser, also gave a mixed reaction.

She said:“The introduction of the Help to Buy scheme is very positive and will hopefully get activity in the second hand market moving, allowing parties to climb up the property ladder, thereby releasing the lower levels – which should be beneficial.

“The £3.5bn to shared equity loans implies assistance in the affordable housing market, although this is a relatively small market in terms of overall market share.

“The promise of 15,000 more affordable homes also sounds positive. However, we would really need to understand how that will be delivered and whether it is proposed to be offered as grant funding or not. Funding may be a false figure, as it may only support housing that was already coming forward rather than create new housing.”

This was posted in Bdaily's Members' News section by Miranda Dobson .