Raise a very tentative half a cheer for budget support for housing
There is an entrenched housing crisis in this country, so any attempt by government to address it must be worth at least one cheer. The budget includes some new initiatives on housing, but sadly the good ones seem to be quite small in comparison with what is needed, and further extension of the Right to Buy is simply counterproductive – perhaps the whole package is worth about half a cheer then.
Let’s look at the five housing and construction measures in the budget in turn (see pps 38/39 of the Budget):
1: Help for construction industry
The budget increases the £200 million Build to Rent fund to £1bn over three years. Welcome, but not enough. There has been a slight recovery in construction “starts” of all tenures since the worst year of the recession, but the figures are still very bad:
Housing starts (England)
|Financial year||Thousands of home started|
Source : DCLG
2: New social housing in relation to social housing need
Housing waiting lists in England around 1.75 million. Thus 15,000 new social homes announced in the budget = 0.86 of a per cent of what’s needed or to put it another way, at this rate it will take until 2129 to build enough social housing to meet current needs
3: Right to Buy
When Grant Sharps widened the RTB last year he promised 1 for 1 replacement of social homes sold. Local authorities in England sold 3,495 social homes between April and Dec 2012. In the same period they built 384 new social homes, which is an actual replacement rate of 10.9 per cent, or just over 1 in 10.
4: Help to Buy Loans
Help to Buy will replace First Buy, which as the name suggests was focused on 1st time buyers. Help to buy = an equity loan to low deposit mortgage takers, amounting to up to 20% of value of property repayable when the home is sold. The maximum value of the home is £600,000. The scheme should avoid deadweight costs because of need to repay the Help to Buy loan, but we will need to see more details, and possibly who takes this up, before we can see if it is really a good scheme. There is now no income cap on applications, and we are not sure what this will mean for the profile of those benefiting
5: Help to Buy mortgage guarantee scheme
This is for low deposit buyers for properties worth up to £600,000. Available to tenants with deposits of 5% to 20%. No income cap. This consists of £12 billion of guarantees for £130 billion worth of high loan-to-value properties. Again, we will need to see more details but at first sight we take this to mean that the government will guarantee an average of 9.2% of the value of such loans (e.g. £12 billion divided by £130 billion). The actual risk to government is relatively low. The current rate of repossessions is not all that much higher than long run average of 0.25% (or 1 in 400), as the more reckless mortgages have already dropped out of the figures. “On an annual basis, repossessions fell from 37,300 in 2011 to 33,900 in 2012 – the lowest annual figure since 2007. This brings the rate of repossession down from 0.33% in 2011 to 0.30% last year.” (Council of Mortgage Lenders)
Perhaps this package might turn out to be another half cheer or so if Help to Buy actually turns out to be useful, but these announcements are definitely not sufficient to address the housing crisis.