Home ownership is only a partial answer to Britain’s property crisis

Few subjects challenge the weather as a core staple of British conversation. Housing is one of them. Over the past 40 years, owner occupiers and renters alike have been mesmerised by the dramatic rise in house prices. These have now reached extraordinary levels. For many young adults, the idea of affordable tenancy, let alone ownership, has become a distant dream.

Rekindling the home owning aspiration is a challenge that George Osborne believes he can answer. In his autumn statement, Britain’s hard-hat sporting chancellor announced plans to double the annual housing budget to £2bn. He will sponsor a new help-to-buy scheme specifically for London, where the increase in house prices has been the sharpest. Rules about shared ownership will be relaxed, and the government will support the construction of 200,000 starter homes by subsidising their price. The goal is to hoist more low- to middle-income families on to the property ladder.

Along with direct assistance, Mr Osborne is also taking aim at landlords and those who buy property for investment, hiking stamp duty by 3 per cent. It is a move that shows where the government’s priorities really lie. For all the talk about new building, Mr Osborne’s policy is primarily a redistributive one.

That is not bad. Over the past year alone, house prices in England and Wales rose 5.6 per cent, according to the Land Registry, easily outstripping bond yields. It is not just the unaffordability that jars the public. Allowing first-time buyers and less-affluent households to grab a slice of the ever-sweeter property pie will be seen as fair by many.

Granted, there are risks in encouraging the less well-off to take on housing debt. The parallel with subprime mortgages in the US cannot be ignored. However, the real question is whether the chancellor’s plan will help to solve the UK’s housing shortage.

While affordability is stretched, demand for homes is not the problem. A quick glance at soaring property prices provides all the proof that is needed. It is the supply that deserves more attention. About 300,000 new homes a year may be necessary to bridge the deepening abyss between the supply and the demand. This year, the UK managed about half of that.

Mr Osborne did address the question of supply in his autumn statement. He abolished the requirement for some new housing to be rented at below-market rates when companies build what he calls “starter homes” for sale. This may provide a small boost.

The likelihood is though that this will mainly benefit middle-class first-time buyers. Mr Osborne had less to offer those further down the housing ladder. His decision to reduce the rents charged by housing associations — the main provider of social housing — means the number of properties built by these organisations may shrink.

There are more effective ways to boost supply. The government has talked a lot about streamlining the UK’s planning system. It has taken some steps towards speeding up the process of land allocation, but too much land is still zoned out of the reach of developers. Local vested interests remain too obdurate. Until it navigates a way round these problems, the government will struggle to increase construction at all, let alone hit its ambitious targets.

Mr Osborne’s zeal for house building may be evident. But prioritising home ownership is not obviously going to increase the number of new houses by anything like the required amount. The best way to get more people on the housing ladder is simple: it is to unblock supply and build much more.

Source – Financial Times