The Government has developed a ridiculous and self-defeating way of supporting the next generation of buyers: by helping them reach ever-rising house prices.
Help to Buy is a great example of this, and should be scrapped in favour of more practical, less inflationary solutions to our property problems.
Why we have Help To Buy
Of course first-time buyers and struggling second-steppers need support. The housing market is not functioning well.
Prices may seem to be slowing – the latest figures from the Office for National Statistics show that average UK prices fell by 0.6% between February and March – but they are still beyond the reach of many ordinary people.
Halifax figures show that prices slipped 0.1% last month and were 0.2% lower in the three months to April. However, that is the first quarterly decline since 2012 and it has not worried most housing commentators.
Martin Ellis, Halifax’s housing economist, said: “Continuing very low mortgage rates, together with an ongoing acute shortage of properties for sale, should nonetheless underpin house prices over the coming months.”
So prices are unlikely to fall far even if they are subdued this year. And they have still inflated by a considerable amount – the average home in March was £9,000 more expensive than in March 2016.
Buyers definitely need help.
However, by helping buyers to meet these higher prices, the Government is ensuring that such prices continue to be asked.
Look, it’s really simple: if the issue is supply and there are not enough homes being built then handing money to the struggling would-be buyers does nothing except increase the demand and support the high prices.
Why Help to Buy fails buyers
Schemes such as providing a bonus on ISA savings and equity loans do not give money to buyers, they line the pockets of older home owners and of property developers.
Meanwhile, first-time buyers and struggling second steppers are simply enabled to buy homes with large mortgages, mortgages that they may well struggle to pay if interest rates once again begin to climb.
What’s more, Help To Buy schemes do not particularly help the buyers who are most in need. In order to benefit from an equity loan or ISA bonus you still need to have considerable savings, which is why so many new buyers are relying on the so-called ‘Bank of Mum and Dad’.
A report from Legal & General and economics consultancy Cebr shows that parents are on course to lend more than £6.5 billion this year to help their adult children buy their first home.
Help To Buy schemes help those people who can already afford to save or who have substantial assistance from their families. They do not help broke renters who do not have access to such funds but who also want the stability and security that home ownership brings.
Won’t demand drive construction?
I can almost hear the Government’s defence of the scheme. It’s helping buyers get a foot on the ladder, it’s helping second steppers move to more suitable homes and it is encouraging home builders to build.
But here’s the thing; home builders are supposed to build, it’s what they do. And there has been enormous demand for years; we have just been failing to build sufficiently. So if rocketing property values haven’t resolved the problem yet then that’s probably not the answer.
In fact, as buyers have become increasingly desperate there have been some pretty unpleasant scandals hitting the market.
There have been a lot of news stories recently about poor quality new builds that have not been built safely.
Another scandal is the new trend in leasehold sales coming with extortionate ground rents that soar in cost each year until the homes the buyers own effectively become unsellable.
There has also been a surge in the construction of ‘micro-homes’: flats that don’t meet the minimum standards normally required by planning officials.
In fact, that last one is actually because the rules changed for office-to-flat conversions, meaning developers can suddenly build homes so small that they look like the punchline to a sitcom joke.
So what is the answer?
I’m glad you asked. We need to spend some serious money and we need to treat the problem, not the symptoms.
It’s difficult to cost the current Help To Buy schemes as mostly they will only become a drain on the county’s coffers if the buyers who are using them default or the properties devalue (and that hasn’t happened in ages, so it’s FINE).
However, the now-concluded Help To Buy Mortgage Guarantee Scheme will be a potential drain on the state for decades to come, until the relevant homebuyers increase their equity stakes.
But the Government could and should spend some money on resolving the housing crisis instead of accepting that the coming generations will have to live in shoeboxes, pay enormous rents to wealthy landlords and hope that a wealthy relative dies and leaves them a house big enough to start a family in.
Here’s what we need to do: boost the number of homes.
This means we need to give council more powers to make use of empty homes, foregoing the need to be at the mercy of developers and adding value to communities.
To add to this we need to find ways to force developers to build more homes on the land they have acquired – Help To Buy has been the carrot and it’s failed. We need a legislative stick.
But before we can get too sticky, we need to ensure that they are capable of delivering more new homes and that requires state help, especially for more small-scale developers.
There are a lot of issues affecting property development just now, there’s even a shortage of bricks.
According to a report from the National Association of Estate Agents (NAEA), compiled with Cebr, we need 1.4 billion bricks to resolve the housing shortage in this country and we simply don’t have enough.
Even more worryingly, we lack a lot of the skills we need to use the bricks to build the homes.
Mark Hayward, managing director of the NAEA SAYS: “The UK housing market is in crisis, with young buyers unable to get on the ladder, and families continuing to live in houses they’ve out-grown for longer than traditionally they would have had to.
“Houses may be getting smaller but we are needing to build more of them than ever so ultimately our needs for bricks is greater than before.
“We need investment in the sector to boost production, and housebuilding needs an image overhaul, to become a more attractive career prospect for school leavers and graduates.”
“Until this is addressed, we might as well resign ourselves to a life time of astronomical prices and falling levels of home-ownership.”
So the next Government needs to consult on how to encourage home supply through empty home and building with an emphasis on making sure the necessary tools and skills are available. Until it does, we will never do more than enable the current generation of buyers to pay ever-increasing prices.
Given the lack of bricks, skills and willingness to build it’s probably worth asking why we’ve spent so many years boosting demand with Help To Buy. It needs to stop now so we can do something more rational.
This article reflects the opinions of the writer, not any corporate view held by BT.