Shake, shake, shake that magic money tree because the government is now promising to find an extra £10 billion for the Help to Buy scheme.
In a bid to help a further 135,000 people get onto the property ladder, Theresa May has confirmed that the extra funding will be made available, with more details to be announced in the Budget next month.
The consensus is that she is trying to win back younger voters who are struggling to buy their own homes and so being tempted by Corbynism and Labour.
She’s right to be worried about losing priced-out voters. Homeownership is down generally, with official figures showing that just under 63% of UK households are owner-occupiers compared to more than 70% in 2003.
And among the young it’s even lower. A recent report published by the Resolution Foundation showed that less than half of millennials are on track to buy a home before they reach 45, compared to more than 70% of baby boomers who had done so by that age.
But the answer is not to inflate the market further by helping buyers pay ever higher prices. I don’t know how the Conservatives keep getting it wrong but they relentlessly do.
Help to Buy isn’t helping
As it stands, houses cost too much. This is because there are not enough of them and whether you want to buy or rent, the scarcity is pushing up the cost. That is the problem; it’s simple enough to see even if it’s trickier to fix.
Those housing costs are having a direct impact on younger people who are forced to pay ever-higher rents, meaning they can’t afford to save for ever-pricier homes of their own. Those that do are paying a small fortune in mortgage costs.
Here’s what the Resolution Foundation found:
“While the average family spent just 6% of their income on housing costs in the early 1960s, this has trebled to 18%.
“Housing costs have taken up a growing proportion of disposable income from each generation to the next. This is true of private and social renters, but mortgage interest costs have come down for recent generations.
“However, the proportion of income being spent on capital repayments has risen relentlessly from generation to generation thanks to house price growth.”
We need more homes, not more money with which to buy those homes.
Imagine that not enough bread is being baked daily in the UK. To help people get bread, the government agrees to provide financial help to households that have saved almost enough for their bread.
Unless more bread is baked, clearly all that is going to do is encourage people to compete for bread, meaning the price of a loaf rockets.
Okay, maybe I laboured that example a little, but surely everyone agrees that the only way to keep prices affordable is to boost supply, not help demand. We need more bread!
Help To Buy is actually hurting
And there’s the problem. If houses are too expensive then helping more people afford them without fixing the supply just boosts the price.
That means that not only is Help to Buy not helping, it’s hurting younger households both now and in the future.
This is the kind of stuff that a GCSE economics pupil could work out, so how do the Conservatives fail to see it?
Among the many critics of the scheme and its extension is the Adam Smith Institute, which bluntly states that this will do nothing to increase supply but will increase demand “and so exacerbate the housing crisis it’s targeting”.
Sam Bowman, executive director of the think tank, argues: “Reviving Help to Buy is like throwing petrol onto a bonfire.
“The property market is totally dysfunctional because supply is so tightly constrained by planning rules, and adding more demand without improving the supply of houses is just going to raise house prices and make homes more unaffordable for people who don't qualify for the Help to Buy subsidy.”
Yes, let’s not forget that homeownership is not possible for everyone – particularly with the current prices. However, forcing up prices causes misery that echoes down the housing chain.
More housing, more social housing, more sense
Help to Buy helps those buyers who can afford to raise a 5% deposit.
That’s beyond many people’s abilities – not because (as one commentator at the Conservative conference confidently, stupidly stated) they are blowing their money on fake tan and beer, but because the cost of living and housing is rising and wages are stagnant.
But when Help to Buy forces up house prices even further, lifelong renters in the private rental sector will experience even higher housing costs.
They will have even less disposable income than before and so less financial security.
And they already have less housing security. The private rental sector has grown rapidly and now four out of every ten 30-year-olds now live in private rented accommodation – in contrast to one in ten 50 years ago.
That means they can be asked to move on with very little notice and with all the additional costs of moving house. They can’t be sure their children can attend the same school because they can’t be sure they will be able to remain in an area.
They can’t plant things in their gardens or paint their homes without wondering if they will still be in them next year.
The only way to help those renters is to build more social housing and more affordable housing. If we boost supply then that will ease demand and prices will stop rising – in fact, they may even fall.
As a result, more millennials will be able to afford their first homes even if they don’t have family help. More renters will be able to secure social housing, and enjoy the stability and security that everyone deserves.
Most importantly, rents would fall and that would benefit the poorest households most. Don’t they deserve a little shake of May’s Magic Money Tree too?
Commenting on the announcement, Dan Wilson Craw, director of Generation Rent, said:
“Of all the responses the government could have to the housing crisis, expanding Help to Buy should be near the bottom of the list. Nearly 5 million households live in private rented homes, but only 135,000 have bought through the scheme so far. Its biggest beneficiaries have been large property developers.
“The £10 billion being touted for Help to Buy could be invested much more effectively in new council housing, which could rehouse the 75,000 families who are currently stuck in temporary accommodation.
“The government is right to seek to improve life in the private rented sector too, and proper regulation of letting agents, along with a formal redress process for complaints against landlords are much needed.
“But for tenants to have the confidence to take on a negligent landlord, they need assurance that they won’t simply be kicked out. The proposed incentives for landlords to offer 12-month tenancies would make barely any difference to the status quo.”
The current system is lining the homebuilder’s pockets, enriching existing homeowners by boosting their property values and doing nothing for the housing security of poorer households.
Extending it makes no sense and I can’t understand why the Tories can’t see that.
This article reflects the opinions of the writer, not any corporate view held by BT.