Help To Build, Not Help To Buy

Carl Jackson assesses the Coalition’s new Help To Buy Scheme – and suggests an alternative supply-side solution

If you think banks are bad at lending money, just wait until you see government try it.

In his fourth Budget, Chancellor George Osborne unveiled the Government’s new “Help to Buy” scheme. For people looking to buy a new build house with a 5% deposit, the Government will offer interest-free loans worth up to 20% of a property’s value, and government-backed mortgage guarantees for the banks which lend to them.

The scheme has two aims; to help people onto the housing ladder and to increase sales of new homes.  However, while the Chancellor’s motives are right, his method is wrong.  Some say the scheme could create a housing bubble, but Help to Buy’s main flaw is that it seeks to boost demand when what we actually need is an explosion of supply.

The policy should be not Help to Buy, but Help to Build.

Britain has a severe housing crisis. A wallet-busting cocktail of high asking prices, big deposits and rocketing rent has made buying a house here a tougher task than extracting euros from a Nicosian cashpoint.

For many, housing’s vicious circle has left a gaping gulf between hope and expectation. Nine in ten renters want to own their home one day, but two thirds believe that day will never come.

Help to Buy is the Government’s solution, and it’s got two things right. First, it understands that, in the world of mortgage deposits,saleboardsagain 20% is the new 10%. Second, by making the loans available to homeowners as well as prospective buyers, it should help the former move up the housing ladder, meaning more starter homes come on the market.

In practice, however, I fear Help to Buy will come unstuck. Banks have welcomed the move, but builders are not so sure.  Therein lies the problem.  To increase housing supply it is builders, not banks, we need to spur into action.

Help to Buy will no doubt lift some people onto the housing ladder.  Buyers with a 5% deposit will get government loans so they can effectively take a 20% deposit to their mortgage lender and get the best deals.

However, encouraging banks to grant mortgages for new homes will achieve very little unless construction firms are jolted into building the tens of thousands more new homes a year that we need. Sadly, Help to Buy offers few incentives for them to do so.

This pessimism is shared by the Office for Budget Responsibility, which says the scheme will push up house prices without boosting construction. Recent experience supports their view. NewBuy – the government scheme launched only last year – was supposed to help 100,000 first time buyers snap up new builds. Twelve months on, only 1,500 new homes have been sold through the scheme.

So what is the solution?

Demand for housing is not the problem. It never really went away.  To resolve Britain’s housing crisis, Help to Buy should tackle its real cause; a decades-long failure to build enough homes.

Put simply, Britain needs a supply-side revolution in housing.  We should loosen the strict planning laws which make developers think building new homes isn’t worth the bother. Ditching the requirement for social housing in developments was a good move, but we need more like it. Cutting planning fees, exempting construction firms from green taxes and making it easier to convert commercial property into housing would tick the right boxes.  If we let builders get on with building, the buying will take care of itself.

Naturally, calls to make house-building easier meet with resistance from those eager to protect Britain’s countryside.  What usually follows is an unedifying public war of words with terms like “environmental disaster” flying in one direction and “Luddite NIMBYs” in the other.

I hail from – and love living in – a peaceful corner of rural England.  However, even through my green-tinted spectacles I see ways to protect our countryside and meet housing needs.  With less than 11% of England classified as “urban”, to say it must be one or the other is to present a false choice.

social housingThe average age of a first-time buyer is now thirty-three and rising. At a time of high youth unemployment, one in four 18-34 year olds say they cannot relocate to seek or take up work because it costs too much to put a roof over their head.

If nothing is done, this problem will only get worse. By 2033 there will be almost six million more households in Britain than there are today.  Keep building new homes at the current rate, and two decades from now we will face a four million home shortfall. To stop our housing crisis becoming a catastrophe, we need drastic supply-side reforms, and fast.

Carl Jackson is a qualified solicitor and policy adviser to a Conservative MP. His main political interests are economics, Europe, energy policy and civil liberties. He tweets as @HenryVIIswallet

1 COMMENT

  1. Absolutely agree, but…

    It’s at least a decade now since I attended a lecture by Richard Best who was at the time head of one of the Jo Rowntree organisations at the Oxford University “Environmental Change Institute” saying the same thing. And of course if we look back at virtually every manifesto since WWII the same theme has recurred with monotonous regularity.

    So how do we go forward? A cynic would spot a pattern and think that there had been a deliberate policy to keep prices up and an ever changing group of people in housing need.

    But I actually wanted to share something different. Here in Oxford I am chair of a community land trust, which is attempting to build a few affordable homes on a small plot. For a variety of reasons we even overpaid for our plot, yet with just conventional borrowing we’ve just had some confirmation from a local Registered Provider that our figures basically stack up. No subsidy. Very little help. Just a small revolving fund that gives us the money to get to planning then we can borrow conventionally and still be able to either let them at Local Housing Allowance level or sell outright at 2/3 local market value (assuming a small “profit” to recycle into another development).

    At every turn over the decade we’ve been working (not all on this site which we’ve had for about four years) we have been faced with obstacles and obfuscation. Our local authorities will not accept that we fulfil their “affordable” criteria, so we can’t partner with bigger developers as part of their affordable contribution, for instance.

    I begin to reckon our main problem is that we don’t have to maintain whole “affordable housing bureaucracy” to keep the hand-wringers happy. We’re getting close now to being able to get on with our first development which will at least give us some credibility through a record of achievement. But it’s like most of the housing bureaucracy simply doesn’t want us to succeed.

    We don’t need subsidies, so I see no reason why commercial developers ought to. We just need the vested interests eradicated (I seem to remember Dave making a speech about eradicating vested interests in January 2010): http://jockcoats.me/planning_promotes_poverty

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