This investigation into declining homeownership is very welcome. The report confirms that a sustained increase in housebuilding will reduce prices and make housing more affordable (Redfern Review, p. 49).
However, the review also suggests that we should focus on the availability of credit to buyers as a means to increasing homeownership rates. This would be irresponsible and detrimental to the true long term affordability of housing, which depends on only house prices and wage growth.
Allowing first time buyers to borrow ever-increasing amounts of money is not a sustainable solution to the problem. First-time buyers are already indebted through student loans and credit cards; any relaxation in borrowing would add risk to these households. This government has already scaled back some of the unhelpful credit-expanding Help to Buy policies introduced by its predecessor, it should not be seduced again by the short term promise of credit.
As well as building the 300,000 homes a year we need, including some on the Green Belt, we can support homeownership by reforming the market to give first time buyers a better chance of outbidding Buy-to-Let (BTL) investors.
The Redfern Review offers some suggestions on how this could be done, including by improving the tax and borrowing position of first-time buyers relative to BTL investors (Redfern Review, p. 34).
Unfortunately, the Review misses most effective mechanisms for achieving this. Rather than giving first-time buyers a stamp duty exemption, we could abolish stamp duty for everyone but BTL investors. To offset the loss in tax receipts, we could tax capital gains on homes instead, shifting the tax burden onto the unearned wealth of existing homeowners and away from taxing the aspiration of young people. The Review recklessly suggests that a borrowing advantage for first-time buyers could be achieved by relaxing constraints on borrowing.
The government should take seriously the need to build homes in the right places to lower house prices, and rebalance the market from BTL investors toward first-time buyers through taxation.