Increasing house prices, limited housing supply, and problems of affordability characterise the housing market. 30 years of very limited new building in social rented housing have led to increasing numbers of households in private renting and renting for longer. Limited wage growth and risk aversion by banks since the financial crisis has meant that saving for a deposit has become more challenging.
The Help to Buy policy introduced by the Coalition government has tried to address this issue effectively reducing the amount that borrowers need to pay upfront. The Conservative party has indicated that it would retain this policy to 2020 if re-elected in 2015.
However the real issue remains on the supply side of the market. Too few houses are being built to meet demand and there are significant constraints on the supply of affordable housing with previous legislation failing to ensure the delivery of homes available for lower income groups who cannot afford to buy.
The Labour Party has indicated that 200,000 new homes will be built each year during the next parliament. Something around this number will be needed. However it is not clear if or how this will be achieved.
Both Labour and the Liberal Democrats propose introducing a ‘Mansion Tax’ on properties valued at over £2m. Both parties seem to suggest spending the revenue generated in specific ways which may break the link between such taxes and local authority revenues. Neither party has stated the level of tax to be charged.
The Conservative party proposes to extend the Right to Buy scheme to tenants of Housing Associations. Many will remember this policy originating with Mrs Thatcher who introduced right to buy for tenants of local authority houses. It proved hugely successful. But the best local authority homes have mostly been sold. However the nature of social renting has changed and a higher proportion of tenants now rely on housing benefit so it is difficult to see how they could access mortgage finance even with the offer of significant discounts on the price of this homes. Housing Associations would also be placed in a difficult position as they lose rental income. Why would they want to build more affordable homes for rent if they are then forced to sell these homes at below market value? Where would sufficient funding come from to fill the shortfall. Further, unlike council houses, housing associations are not part of the public sector and from a legal perspective it is not clear that the government could tell them that ownership rights should be transferred. The policy still does not address the supply issue.
The most acute housing pressures are felt in London and the South East. There is an added complexity due to the role of overseas buyers buying properties off plan for investment assets. The tenants for these homes would usually be highly paid and able to afford the high rents charged. Lower income groups would be priced out of the market and hence face significant housing pressures. Even skilled workers will continue to be priced out and face longer commuting times to work.
The decline in new house building is long term and has been noticeable since the almost complete collapse in the construction of council housing in the 1980s. Housing associations have added to the supply of affordable housing but not at the volumes of council house building programmes in the 1960s and 1970s. Brownfield sites have also added to construction costs and negatively impacted supply. A further challenge is that new development has often been of flats rather than houses and demand remains stronger for the latter.
While most people still own their own homes, this proportion has been falling particularly among younger age groups, sometimes referred to as ‘generation rent’. If this marks the beginning of a new trend then it would represent the biggest change in housing tenure since the interwar period. The Labour Party policy of introducing 3 year assured tenancies would then provide some stability for these tenants. However the idea of a property owning democracy may become unachievable if the problems on the supply side are not addressed.
– This article originally appeared on The Conversation –
Professor Michael White
Expert in Real Estates Economics
School of Architecture, Design and the Built Environment