Housing: #Budget2015 spins “signs of normalisation”
“There continue to be signs of normalisation in the housing market” says the government (Budget Report 2015, 915, para 124). With home ownership in retreat, rents rising and 1.3 million on the social housing waiting lists, the situation seems much more like an entrenched crisis than normalisation.
The government has made some claims about housing getting back on track. Let’s look at them in turn and fill in the bad news that the government has left unsaid. They say:
“with indicators suggesting continued increases in house building and moderating house price growth. Housing starts were up 10% in England in 2014 and house prices grew by 9.8% in the year to December 2014, down from 12.1% in the year to September 2014”
We say on house building: housing starts in England did indeed increase in 2014, but they only recovered to 75% of volume of houses built in 2007, just before the credit crunch (183,600 starts in England in 2007, compared to 137,020 in 2014 – DCLG housing statistics, live table 214). Furthermore, there are signs that the recovery faded during 2014, with only 24,990 starts in the 4th quarter – 9.8% less than in the final quarter of 2013 and less than half of the comparable figure for 2007.
We say on house prices: Average earnings increased by 2.1% in 2014 (ONS table EARN01). House prices grew by more than 4 times as much as earnings during the year. Homes are still becoming steadily less affordable. They say:
“Effective mortgage rates fell to 2.8% in January 2015, the lowest rate on record.Lower effective mortgage rates should make it easier to service a mortgage and support housing demand.”
We say: mortgage rates are indeed low, but rising prices and excessive deposits are driving customers away. The Council of Mortgage Lenders published new figures yesterday showing that the number of mortgages approved was declining. Only buy-to let mortgages bucked the trend, increasing by 6% over the last year. The private rented sector is growing whilst home ownership has declined by about a quarter of a million since 2010.
Loans for home-owner house purchase and remortgage:
|Number of house purchase loans||Value of house purchase loans, £m||Number of remortgage loans||Value of remortgage loans, £m|
|Change from December 2014||-25.5%||-24.7%||15.3%||20.6%|
|Change from Jan 2014||-15.5%||-12.5%||-11.7%||-4.7%|
Source: CML 17 March 2015
Sadly, we have to conclude that the budget report has spun the news on housing. The unvarnished truth is that housing has a long way to go to get back to pre-crisis levels, and even in the boom there was a housing shortage in the UK.
The budget has thus proved to be a wasted opportunity. the next government will need to plan to build many more houses of all types of tenure, including social housing. My estimate is that that at least 250,000 per year will be needed. This will be a real challenge, but its one that government will need to address if we are to be a healthy, happy and prosperous country.