All in all H2B shines more light on the huge political paradox surrounding housing policy. Namely that the Government MUST get housing supply up to address the housing crisis but it does not want to see price falls – no matter how much the economics of housing policy indicate that price falls are necessary to address the crisis. Re-election in 2015 relies on a feel good factor in Middle England. For existing homeowners (c15m people) rising house prices is a key barometer of how well a government is doing and the political reality is that if this Government wants to win another term it needs stable or rising house prices. Politically, H2B will help achieve this.
Town planning is all about balance. Scales can easily tip either too far towards economic growth or too far towards environmental protection. I hesitate to think about shades of grey but I am certainly struck by the binary nature of the town planning discussion at the moment? For one side new greenfield housing is neither necessary nor wanted whilst on the other the failure to build is simply generational theft.
Whilst frustrating twas ever thus. It used to be CPRE vs HBF. Now it seems to be Sir Simon Jenkins vs CBI. The Governments Help to Buy scheme, launched in the budget, seems to be the most recent manifestation of the polarised nature of the debate. The responses seem to fall into two camps. Firstly that it will cause an unwelcome house price bubble or secondly that it will bring a much welcome boost to supply. No one seems to be occupying the middle ground namely whether this is a policy which brings real prospects of increased housebuilding activity but also brings demand side risks which need to be carefully monitored and managed.
For the first few weeks after the budget we saw an avalanche of hostile criticism – much of it derived from the view that it would artificially inflate demand thus giving rise to a sub prime lending crisis. Conversely the HBF were delighted, sensing the opportunity of increased volumes and, potentially, margin.
What is the real position? I am certainly not going to claim to know – rather my aim is simply to give some perspectives on the issues at play.
Firstly it seems irrefutable to me that H2B will increase supply. All the evidence I see is that there is a group of potential buyers in the marketplace who can service a mortgage but cannot raise 20% deposit. H2B will enable those people to secure a new build property and the house builders will respond.
At a macro level increased supply will ease the supply demand imbalance and therefore, potentially, cool prices. However the structural market imbalance is so great that the relatively limited impact on supply will be outweighed by the demand stimulus described above. Therefore prices seem likely to rise in the short term. In terms of whether this could cause a price bubble or another sub prime crisis those fears seem unfounded for 5 reasons.
Firstly the scheme is only available on capital repayment mortgages. The glut of easily serviceable interest only mortgages, lacking cover, was a key factor in the last crisis. Secondly borrowers will need to be able to demonstrate that their earnings can service their debt. This contrasts sharply with some lending practices during the boom. Thirdly borrowers will still need a 5% deposit – there won’t be any 125% mortgage options this time around. Fourthly whilst it will stimulate demand it will also create a positive supply side response as, an albeit limited, counterbalance. Finally it must be remembered it is a time limited policy lasting only for 3 years. If the externalities are demonstrably negative then clearly it will be withdrawn whereas if we do see significant benefits from the the supply boost it could perhaps be extended.
As a planner I can’t help but welcome the initiative as it will undoubtedly help create better conditions to get more homes built. The lack of supply over the last 2 or 3 decades is, in my opinion, the root cause of the crisis. However I am very conscious of the concerns of some economists and housing professionals about an artificial demand boost which will likely lead to housing becoming even further out of the reach of first time or second time buyers.
In my view rising supply, price stability and measures to increase housing access for lower income households needs to be the policy focus. Whether it be a wave of Council housebuilding, measures to build more private rented homes or further measures to boost owner occupation, one thing is clear – Britain needs to get building to give younger families a better future.