Last week the Prime Minister was quoted as saying that when it comes to issues such as housing supply there were no “easy or quick wins”.
Somewhat surprisingly therefore, this came in the same interview which revealed a new help-to-buy scheme, which we now know to be ‘Your First Home’.
Housebuilders will be licking their lips at the prospect of access to more customers, and I imagine hoardings are being printed up as we speak displaying the 2.5% deposit contributions that are on their way.
This month the Ministry of Housing, Communities and Local Government published its evaluation of Help to Buy. It concluded that the scheme was “very high value for money”. Yet when you investigate the detail, it does not seem to add up.
Bringing in this new scheme is a mistake. It will do nothing to make homes more affordable for young people trying to get onto the housing ladder, and it could ultimately make things worse.
Unpacking the report
The report says the Help to Buy scheme generated £25.1 billion in “social value”. Once loan repayments are counted, it says the scheme cost the government just £3.6 billion.
But what is this social value? How is it calculated, and who does it help?
Dig into the method and the answer is land. Every penny of the £25.1 billion comes from “land value uplift”: how much more a site is worth once homes are built on it. It is the only benefit the report counts.
That is a real gain. But it goes mainly to whoever owns the land, not to “society” as a whole.
And if prices are higher for buyers, the calculation treats this as a transfer from them to whoever is selling. It isn’t counted as a cost against the social benefit.
So higher prices count as value when they end up with a landowner, and as nothing when they come out of a first-time buyer’s pocket.
The result is that the report counts the gains to landowners as a benefit, but ignores the higher prices paid by first-time buyers, so the scheme looks like a success for society even if the people it was meant to help ended up worse off.
Who pays
The report admits the scheme pushed prices up – by around 2%. Another study found prices rose by around 8% in London after the loans there were increased, though the review itself didn’t find strong evidence of that.
2% sounds small. On an average home in England today, it’s over £5,700.
Around 967,000 households in England bought their first home in the last three years. If that premium has stuck, between them they have paid over £5 billion extra. That’s nearly £2 billion every year, or close to £20 billion over a decade.
That’s months more saving for a deposit for people trying to take their first step.
So, while the gains have gone to landowners, first-time buyers pick up the bill.
Affordability is the point
Affordability is the measure that matters. Both this report and the Government are at risk of forgetting that.
The aim of housing policy should be homes people can afford, and young people most of all.
That’s why we have housing targets in the first place. We believe building more homes, especially social homes, will take the heat out of rents and house prices. That’s why we’ve called for 150,000 new social homes a year.
The target is a means to an end. It is not the end in itself.
When Labour fixates on the numbers, they risk sacrificing the end in pursuit of the means.
A new Help to Buy might boost the numbers. But if it pushes prices up and makes homes less affordable, it betrays the goal the target is meant to serve.
If the Government has money to spend on housing, it should go straight into building more social and affordable homes.
Not into subsidising demand, pushing up prices and leaving future buyers worse off.
Food for thought. Very good
Governments should incentivise the behaviours they wish to see and I agree that it’s reasonable to want to help young people to buy a place to live. Perhaps the money would be better spent on encouraging owners of larger houses to downsize by adjusting stamp duty, and landlords to sell to existing tenants by reducing capital gains liability. There is the need to build more social and affordable houses, but that takes time; unblocking the log-jam in the housing market in a targeted way would be helpful sooner, I think.