This article was originally published on Conservative Home.
David Cameron has started 2014 by hailing the success of the Help to Buy scheme, which has given six thousand people access to high-value mortgages since its launch in October. The timing displays the Prime Minister’s recognition that housing will be the central political battleground in the year that UK parties will forge their general election manifestos. However, the Coalition’s flagship scheme for owner-occupation is a long way from addressing a crisis in housing that has seen the first-time buyer’s average age rise to 37, while housebuilding rates have stagnated.
Although the equity loan element of Help to Buy, which covers newly-built housing only, is an acknowledgement of the need for more homes, the mortgage guarantee scheme simply enables more people to compete over the same limited supply, running the risk of making houses even less affordable.
Even for individual families stuck renting, the scheme might not be the silver bullet the government seeks. Because of the premium interest rates involved, taking out a Help to Buy mortgage with a five per cent deposit will cost more in monthly repayments than rent, so many will be better off saving for a larger deposit. And that’s before any increase in the base rate is accounted for.
Considering that the government anticipated £130 billion of loans over the scheme’s three-year life, the £1 billion lent in three months amounts to only around a tenth of what we might expect. It is, of course, early days, but if take-up remains low there won’t be many direct beneficiaries come election time. Help to Buy’s real impact may be to inflate another bubble as speculators pile into a property market being underwritten by the taxpayer.
An unguarded comment by George Osborne early last year suggested that this was the scheme’s real political motive: “Hopefully we will get a little housing boom and everyone will be happy as property values go up,” he reportedly told Cabinet colleagues. Received wisdom said that homeowners, seeing their wealth increase without lifting a finger, would reward the Tories at the ballot box.
However, our normally astute Chancellor may have made a miscalculation about the popularity of this move. The number of people in the private rented sector has doubled in the past decade – that’s millions more voters who don’t want house prices to go up. And it is also dawning on baby boomers that their fabulous housing wealth has come at the price of impoverishing their children. Recent polling by Ipsos Mori,Populus and YouGov indicate that the electorate doesn’t want higher house prices, and it’s becoming a more important issue for many voters.
Appearing to recognise this, Osborne committed himself to house price stability in December’s Autumn Statement, though we have yet to hear what level of inflation he thinks is too high. He also permitted increased council borrowing to build houses, and slapped capital gains tax on foreign investors in property.
Outside of the Treasury, there is an encouraging number of Conservatives who understand that housing is too important to rely on a sticking plaster like Help to Buy to fix. As Planning Minister, Nick Boles introduced reforms to make it easier to build the houses we need. Number 10’s Policy Unit has just hired Policy Exchange’s Alex Morton as housing adviser – hopefully an endorsement of his radical ideas to build 1.5 million homes. Renewal, the pressure group seeking to broaden the Conservatives’ appeal, recently echoed this target and called for more local authority building. And Conservative Home gets it too.
Cameron could be tempted to see the economic recovery as the answer to our housing woes. We saw a boost in building rates last year, but this was from a historically low base, and we are still a long way from higher (but still too low) pre-2008 levels. The Tories certainly cannot rest on their laurels when housing features so highly in Ed Miliband’s cost of living agenda. After all, for all those would-be homeowners who can’t benefit from Help to Buy, rent is their biggest monthly outgoing, and it keeps going up, particularly in the strongest labour markets.
Housing is a common refrain in Miliband’s stump speeches. He gave his shadow housing minister a Cabinet-level position, and he has already committed a Labour government to build 1 million homes, appointing Michael Lyons to develop the strategy. Labour are still being cautious on green belt development, but they do see new towns as essential to fill the housing gap.
There is public appetite for a party with the will to mend the dysfunctional housing market and both Labour and Tories should be fighting for this ground in 2014. In booming cities like London, Oxford, Bristol and York, where fewer graduates can afford to start a career because housing is so expensive, people are crying out for new homes. Lower housing costs would increase disposable income and would-be entrepreneurs would be more willing to start a business if they weren’t fretting about the size of their mortgage. Bold solutions like self-build could prove to be as popular as Right to Buy – but would also be sustainable.
Unfortunately, there is evidence that Cameron’s heart just isn’t in it. He sacked his Minister of State for Housing and appointed his replacement to the ministerial rung below. He is reported to have vetoed any plans to build new towns, apparently frightened by noises made by a small number of hardcore NIMBYs.
It also sounds like Cameron doesn’t really appreciate the problem. Denying on Thursday that Help to Buy was creating a bubble, he pointed out that prices were still below the 2007 peak. While true, the house price to earnings ratio is still a historically high 4.5, putting home ownership out of the reach of people on ordinary incomes, and should not be any higher. As leader of a party that supports aspiration and hard work, Cameron cannot see wages rising by less than three per cent and then welcome predicted house price inflation of eight per cent in 2014 – can he?