I won’t miss help to buy. It only made the housing market worse
|
Version 0 of 1. If you’re looking for clues as to why George Osborne’s help-to-buy scheme was not a magic bullet for the housing crisis, look no further than its own website. There, in the summer of 2015, appeared the story of Matthew and Alice: a young pair of teachers from South Yorkshire whom the help-to-buy scheme helped to buy. “This is a house we’ll be able to grow into,” the case study quotes Matthew as saying, presumably as he gazes, dewy-eyed, at a light fitting or something. But then he adds: “We were fortunate with the deposit in that I’d inherited some money from both sets of grandparents, but help to buy has made it possible to buy a home that is more spacious than we thought we’d be able to afford.” This, remember, was a couple that the government chose to highlight as a case study. This was an official statement as to who help to buy was for. And the government chose a couple who could have bought anyway, through their inheritance. A quick primer on what help to buy actually does is due at this point, as the scheme comes in several flavours. One is a 20% government equity loan, for those buying new-build houses (this is the one Matthew and Alice used). Another is an ISA: for every pound you save, the government will give you an extra 25p, up to a maximum of £3,000. This would be great, if you had any money to save, but with the level of rents these days, there’s a fair chance you don’t. These parts of the scheme are still both alive and well; a third is not long for this world. Since October 2013, buyers have been able to buy a home – existing as well as new-build – with a deposit of just 5%. Only first-time buyers qualify, the guarantee is only available on properties up to a certain price (£600,000), and no one is allowed to borrow more than 4.5 times their income. But nonetheless, these were pretty liberal terms, and selected lenders have been willing to offer 95% mortgages to eligible borrowers, safe in the knowledge that the government had guaranteed the mortgage. This scheme’s impending demise hit the headlines after the chancellor, Philip Hammond, confirmed plans to close it at the end of the year. But this was always going to be the plan – because, unlike the ISA and the equity loan, the mortgage guarantee was never really about buyers at all. It was about lenders. In 2013, few financial institutions were willing to lend to first-time buyers with 5% deposits. Now, in part thanks to the mortgage guarantee, confidence has returned, and the number of 95% mortgages on offer has increased by a factor of almost five. Seen through that lens, the scheme worked. But did it actually help anyone to buy? On the surface the answer is clearly yes: more than 86,000 households, in fact. Except … think about the scheme’s wider effects. By making more people able to buy, the government was effectively encouraging more money into the housing market. If you aren’t simultaneously building a lot more houses, which obviously we aren’t, then the main effect of chucking more money into the market will be an increase in prices. In other words, while help to buy might have helped a few, its contribution to ever-rising house prices will have stymied many others. Apart from anything else, that 5% deposit just keeps getting harder to save for. So if mortgage guarantees weren’t the solution, what is? The help-to-buy equity loan may help at the margin: it’s only available on new-build properties, so it should encourage housebuilders to build more. But not, so far, a lot more. And if we’re ever going to see home ownership return to the levels enjoyed by earlier generations, we are going to need a lot more housing, to reflect the fact this country now contains a lot more people. This means reforming the green belt, to reduce land prices and give over-crowded cities space to grow. It means getting the state building homes again, to acknowledge the fact that the big housebuilders – which have an incentive to keep prices high – are never going to plug the gap themselves. (Hammond, to his credit, seems to have realised this. In his speech today, he promised £2bn to spend on new building on public land, as well as £3bn to help smaller housebuilders get house building.) It may even require us to start knocking things down, and rebuilding them at higher densities. The David Cameron government didn’t do any of those things. It didn’t make any of the hard choices required to solve the housing crisis. It never even acknowledged that the main reason ownership kept on falling was because prices kept on rising. Instead, it offered a few well-targeted subsidies to keep the money flowing and help a few lucky buyers to join the party. In a report out last week, the Institute for Fiscal Studies showed that those born in the early 80s (hi!) are on average half as rich as those born 10 years earlier were at the same age. The crash, austerity, and the increasingly mythical status of pensions all play their part in that. But the biggest element is surely housing. Help to buy did not arrest that trend. It may well have made things worse. |