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Osborne must act to freeze house prices to hit his first-time buyer target

·       The Conservatives have pledged to double the number of first-time buyers

·       House prices will need to stop rising for this target to be met, analysis shows

The government will fail on its election promise to double the number of first-time buyers if it doesn’t act to put a brake on house prices, PricedOut says today.

During the General Election, George Osborne pledged to double the number of first-buyers[i] from its current level of 300,000. But the higher house prices rise, the fewer people will be able to afford to buy their first home.

Zero house price inflation, combined with forecast wage growth of 19% between 2015 and 2019, would bring home ownership back within reach of 300,000 couples currently renting. PricedOut is therefore calling on the Chancellor to set a target of zero house price inflation in his Autumn Statement.

PricedOut has calculated that a household would require an income of £54,000 to afford the average first home of £216,000, but HMRC figures show that 72% of dual income households earn less than this - the equivalent of 3.89million private renters[ii].

But if house prices stopped rising[iii] and earnings grew at the rate forecasted by the Office for Budget Responsibility, 12% more households would be earning £54,000 or more, thus becoming ‘priced into’ home ownership.

While a target of zero house price inflation would in itself have a useful effect on market sentiment, these further reforms would be needed to bring house price inflation to a halt:

Building 300,000 homes a year focussed in the most unaffordable areas;

Clamping down on buy-to-let by completely withdrawing tax relief on buy-to-let mortgage interest;

Reforming property taxation by enabling councils to revalue and change the banding of council tax to reflect contemporary house prices and increasing capital gains tax to deter the use of housing as a speculative investment.

Restraining mortgage lending including an end to Help To Buy mortgage guarantees;

Duncan Stott, Director of PricedOut, said:

“The Conservatives like to say they are ‘the party of home ownership’, but the level of home ownership declined throughout their first five years in power. If George Osborne genuinely wants to meet the aspirations of first-time buyers, he must take immediate action to bring an end to the UK’s addiction to rising house prices.

“No-one seriously believes that a few little schemes and initiatives will fix the housing crisis. The only way that the Conservatives will fulfil their promise to double the number of first-time buyers is with a target of zero house price inflation. Major reforms to the way the housing market operates will be needed to meet this target.”

Ends

Notes to editors

PricedOut (www.pricedout.org.uk) represents the millions of people who would like to buy their own home but cannot buy because of high house prices and high rents. The campaign is independent of any political party and supports initiatives to increase the supply of good quality housing in the priciest areas of the UK.

PricedOut uses the HMRC’s percentile breakdown of UK taxpayer incomes, the English Housing Survey’s income profile of private renters and the Office for National Statistics’ latest House Price Index to estimate how many people can afford the average first home, based on the assumption that a home is affordable if it is no more than 4 times household income.  

Date

Average first-time buyer house price

Income percentile that cannot afford to buy

Joint income

Number of private tenants that cannot afford to buy

Total priced out

% priced out

May 2010

£155,000

49

£38,600

2,501,550

2.50m

54%

Sep 2015[iv]

£216,000

62

£53,102

3,886,835

3.89m

72%

2019[v]

£216,000

52

£45,012

3,265,020

3.27m

60%

 

The full methodology can be found in PricedOut’s original PricedOut Index report: http://d3n8a8pro7vhmx.cloudfront.net/pricedout/pages/44/attachments/original/1392820666/PricedOut_Index_report_190214.pdf?1392820666

Grant Shapps, the Conservatives’ original Housing Minister, called for “a period of house price stability” in October 2010. First-time buyer house prices have since increased by £63,000. https://www.gov.uk/government/news/grant-shapps-urges-house-price-stability-to-help-wannabe-homeowners



[i] The Conservative Party Manifesto 2015

[ii] Data availability is limited to private rented sector tenants who pay income tax

[iii] Nominal terms

[iv] Latest available data

[v] Figure if house prices were to freeze throughout 2015 to 2019

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Debunking the NIMBY arguments against new homes

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One of the reasons the UK is failing to build the 300,000 homes per year we need is that whenever a proposal to build more homes is made, rural campaigners team up with established locals to form opposition to the plans. Time and time gain we hear the same dubious arguments made as to why they should not be built. Here is our guide to the most common objections to new homes and why the complaint has no merit.

1. 'They won't be affordable!!!'
The failure to build enough homes over the last 35 years is one of the main reasons housing has become so unaffordable. The longer we perpetuate this failure, the more rents and house prices will rise. We agree that developers must make reasonable contributions towards Affordable Housing and councils should be firm with them to ensure they don't shirk their responsibilities.

2. 'We must stop concreting over the countryside!!!'
Only 2.3% of our land surface is actually concreted over. We can easily meet the country's housing need while protecting our beautiful landscapes and keeping the overwhelming majority of our land green and pleasant.

3. 'It will cause traffic congestion!!!'
The spiralling cost of housing pushes workers away from where they work to more distant connurbations, leading to longer commutes and more congestion. Building more homes as close as possible to where people's jobs are means cutting commute times and makes cycling or mass public transport systems viable, instead of everybody cramming up trunk roads from dispersed locations.

4. 'Our schools/hospitals can't cope!!!'
Schools or hospitals need to keep up with population growth regardless of housebuilding. Even if you don't build a house, those children and those patients will still need to be catered for. Developments create the opportunity to build new public facilities within the newly built area.

5. 'Keep our area special!!!'
Our own community will always be special to us, but we must not mistake keeping an area special with keeping an area exclusive. Communities thrive when they have a healthy mix of people of all ages and all incomes. Ensuring that there are homes available to people from all walks of life will ensure that the special character of an area can be enjoyed by the many not the few.

6. 'What about all the empty homes?!!!'
We agree that every home should be lived in, however the scale of the empty homes problem has been over-exaggerated. Most so-called empty homes are only unoccupied for under 6 months and it is important for a functioning housing market that some properties become empty. It also matters where the empty homes are: an empty house in a town in one end of the country does nothing to meet the housing need at the other end of the country.

7. 'We should build on brownfield instead!!!'
We agree that brownfield should be redeveloped, however there simply isn't enough brownfield land to cope with all the housing need in the most unaffordable areas. Also bear in mind that not all brownfield is suitable for redevelopment - some brownfield sites are home to endangered wildlife, as opposed to farmland sprayed with pesticides so that the farmed crop is the only thing alive. We will need to use a mix of brownfield and greenfield sites to get the homes we need built.

8. 'Britain needs to grow more food!!!'
Britain has been a net importer of food for over 150 years, so the idea that we will ever become food self-sufficient is never going to be realistic. Millions of tons of food grown on our farms never makes it onto the shelves, which means that in fact a big oversupply of the food that can be grown in Britain.

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Keeping Their Promise

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The Conservatives were elected on a promise to "double the number of first-time buyers". Our analysis shows the government must reach 600,000 first-time buyers per year by 2020 to fulfil their promise. As the Conservatives seek to present themselves as 'the party of homeownership', they must take radical action to meet the aspirations of first-time buyers.

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Summer Budget: Buy-to-let tax clampdown

Commenting on the announcement of withdrawal of tax relief on buy-to-let mortgage interest for higher-rate income taxpayers, Duncan Stott, director of affordable house price campaign PricedOut, said:

"For too long, buy-to-let landlords have been using an unfair tax break to outcompete first-time buyers and drive house prices further out of reach. This reform will be warmly welcomed by working people who aspire to own their own home instead of paying rent to fund their buy-to-let landlord's mortgage.

"For the Conservatives to be pro-homeownership, it means they must take action against buy-to-let. We hope this excellent move to bring fairness to mortgage taxation will be just the beginning of the reforms needed to get the housing market into a fit shape for first-time buyers."

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1.26 million priced out of home ownership under the coalition

3.8m private renters are unable to afford the average first home, new analysis from PricedOut finds today.

The figure includes 1.26m private renters who have been priced out of home ownership by rampant house price inflation and stagnant wages since 2010.

A household would require an income of £51,250 to afford the average first home of £205,000, but HMRC figures show that 69% of dual income households earn less than this - the equivalent of 3.76m private renters who pay income tax.

In 2010, the average first home stood at £155,000 – affordable to households earning £38,750 or more, but still out of reach for 2.50m of income tax-paying private renters – or 54% of the total.

The government launched the Help to Buy scheme in March 2013 and since then the price of the average first home has risen by 14%. A total of 70,000 first homes have been bought under both forms of the scheme. Assuming two people for each household, the analysis shows that for each of the 140,000 beneficiaries of Help to Buy, nine people have had their aspirations destroyed by rising prices under the coalition government.

Duncan Stott, Director of PricedOut, said:

“The Coalition claimed that it supports first-time buyers, but it has presided over a massive corrosion of their aspirations. By encouraging house prices to rise and completely failing to deliver the homes needed to meet demand, more than a million people now have the outgoing government to blame for being denied the chance of a home of their own.

“Throwing money at buyers with initiatives like Help to Buy is dangerously counterproductive. If the next government is serious about reviving home ownership, its top priority must be to set about building enough homes to end house price inflation, otherwise more and more people will become stuck in a lifetime of renting.”

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