By Frances Brill
The UK is gripped by a housing crisis. According to the Department for Communities and Local Government there was a 118,760 housing shortage in 2014. This, in part, has driven huge house price increases: 12% in London and 11% in Bristol last year.
Homes are becoming less affordable. The most commonly proposed solution is an increase in housebuilding which will put downward pressure on prices.The new Conservative government promises more homes and more ways of buying these homes. They have proposed 'Starter Homes', expanded the 'Right to Buy' and 'Help to Buy' and promise to restrict regulation. These neglect some of the biggest problems within the market: the rising cost of private rental and a severe lack of social housing.
'Starter Homes' is a policy for first time buyers, under the age of 40. With a 5% deposit they will be able to buy a property with a minimum 20% discount up to a total market price of £250,000 (and £450,000 in London). These homes will all be built on brownfield sites, with specific areas already identified. Within days of the announcement thousands of people signed up, it was clearly very popular. However, it requires a commitment for five years of occupation. It is a mid-
term policy which aims to reduce the burden of buying a bigger home in the future; it facilitates the purchase of a slightly bigger home than the one the individual could already afford, rather than helping people totally off the ladder to get a step on. Furthermore, the construction of these Starter Homes is exempt from Section 106. Section 106 is a legal obligation for most property developments. Developers are required to provide something of community benefit, most commonly social housing. Removing this makes the property construction cheaper for the developer and creates incentives for builders. However, it also means more homes for the middle-class without any consideration of social housing.
One of the Conservatives most successful policies, for attracting young workers, was their Help to Buy equity loan scheme, which will be expanded. The government guarantees 20% of the value of the house, interest free. This is therefore a much cheaper way to buy a home than the Starter Homes, since borrowing 75% rather than 95% of a home’s value reduces the cost of borrowing by 2% annually. This policy is also flawed though, it has been deeply criticised for driving up the value of homes, it reduces individual ownership of their biggest asset and even with the reduced cost, in places like London, the mortgage payments remain high.
The expansion of the Right to Buy would be a politically savvy move. The Conservative proposal is a radical expansion which includes 1.3million more homes, all sold by Housing Associations. If as successful as the original Right to Buy it will see a new generation of homeowners and it will target those who cannot afford to get on the property ladder in other ways. However, it will deplete the stock of affordable rentals which is already a problem for the British housing market. There are also questions about whether the government can legally force a third party to sell its assets at below market value.
Low interest rates encourage people to take out mortgages, since the cost of borrowing money is lower. The Conservatives have pledged to keep interest rates low, even if it is at the discretion of the MPC in the Bank of England, not the government, to decide on levels. They have also tried to tackle the disincentive to save by introducing a special ISA for those saving for a deposit. This will fuel their Help to Buy schemes. However, low interests rates are not the only reason young people are not saving for homes. Low and stagnant wages, including prestigious graduate jobs at top City firms, have not increased over the last five years but the cost of living and rents have. Therefore, many would-be savers and homeowners just lack the disposable income to save.
The wrong focus
At the heart of this is one of the biggest problems with the Conservatives' policies: the focus on home ownership. Britain fetishises home ownership, but the biggest problem is a lack of affordable rental homes and housing policy should be trying to address this. Making rent more affordable will stimulate ownership attempts in the long term and consumption fuelled economic growth in the short-run.
Part of the Conservative's 'Big Society" was a push for localism and for devolved planning powers. They simplified the planning system into 59 pages of regulation. This was coupled with deregulation within the system. Permitted development rights (PDR) allowed property owners to convert commercial properties to residential ones much more easily. Again, this was meant to plug the housing gap and encourage a more efficient allocation of properties. However, it allowed the maximisation of profit at the expense of long-term growth and local authorities could see this. They were given the chance to opt-out of PDRs and many applied but only a few were granted exemptions. Properties are more profitable as homes, even if the home is empty, than as offices. PDR is an example of deregulation which will create problems: ghost blocks and a lack of employment opportunities as office space and consequently companies are lost.
The Conservatives made big promises in their manifestos. Their housing policies provide ways of facilitating young(ish) workers to buy a reasonably priced home, outside of London. However, they have not tackled the issues of poor quality and lack of quantity in both private and social rental. Rather, they propose depleting stocks further. They want us to buy homes to fuel the economy. But if we instead tackled private rental, reduced the number of professional landlords and created fewer incentives to 'Buy to Let', young people would have the chance to save.
If more people were not burdened by annual mortgage repayments and instead rented, like our European counterparts, both the public and the economy would benefit.
Frances Brill is a PhD candidate at UCL. She is involved with Civic Voice, writes for the Global Urbanist and tweets from @fnbee22.
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