Osborne’s choicePosted: March 21, 2013 | |
Here’s my take on the four key questions for housing coming out of the Budget so far.
1) Is Osborne just blowing bubbles? There are sound reasons why the government might want to help people buy new homes or help first-time buyers get mortgages. The equity loan and mortgage guarantee schemes under Help to Buy are extensions of the existing FirstBuy and NewBuy schemes.
However, put them together and you have new schemes that will go to more people and go further up the income scale (a mortgage of up to £600,000 would suggest a household income of getting on for £200,000) without any guarantees that they will result in any more new homes being built. The equity loan option will be available on all homes but is designed to exclude second home owners and buy to let landlords. However, where NewBuy only applied to new homes, the mortgage guarantee will apply to the whole market. And on the Today programme this morning George Osborne repeatedly ducked questions about whether second and multiple home owners would be able to apply. It seems that any attempt at targeting new supply or first-time buyers has been abandoned in a desperate attempt to get the housing market moving before the next election.
Perhaps, as with their predecessors, the results will be less than overwhelming. If so, some trapped renters will benefit without much of an overall impact on the market. However, the scale of the package is clearly designed to make a splash. And if they succeed in boosting demand without boosting supply the result will just be higher house prices that leave many other people behind. If that bubble pops later on, the government could be left with a big liability.
In my view, the fundamental problem with the UK housing market (and therefore the rental market too) is that house prices are too high and out of kilter with earnings. The government, encouraged by housebuilders, has decided that the fundamental problem is lack of mortgage lending. This is a huge gamble.
2) What do you call a rebooted reboot? A year after it was relaunched, reinivigorated and rebooted, it’s déjà vu for the right to buy. We already knew about the increase in the maximum discount in London to £100,000 but there were two additional carrots in the Budget that will apply everywhere: a reduction in the qualifying period from five years to three years; plus a look at ways to ‘simplify’ the application process.
According to the Budget document: ‘The additional receipts from increased sales will be used to pay down housing debt and support the Government’s commitment to 1:1 replacement of all additional homes sold.’ However, one for one replacement looked a tall order even at the lower discount. Last year’s impact assessment said that £75,000 ‘was chosen because it was considered to best meet the policy objectives, in particular the potential to increase take up of Right to Buy whilst at the same time ensuring that receipts would be sufficient to enable one for one replacement with affordable rent properties’. This was never true replacement since it involved trading social rent homes for affordable rent. The new policy will mean more sales and more receipts for the Treasury according to Budget forecast but on its own assessment this leaves any notion of one for one replacement further away than ever.
Meanwhile the government is reviving pay to stay, the policy promoted by Grant Shapps to charge tenants earning more than £60,000 a full market rent. I’ve never been a fan of a policy that is cumbersome and full of contradictions. The rebooted right to buy gives anyone affected an obvious alternative – and maybe that is the intention.
3) What about social housing? Billions were found for Help to Buy and Build to Rent to boost home ownership and private renting but what about the money for new affordable homes that was supposedly the Lib Dem price for supporting increased right to buy discounts? The Budget statement mentioned £225 million for 15,000 affordable homes. That would be paltry enough and implies funding at below current affordable rent levels but buried deeper in the Budget tables is a line that puts the additional spending at just £125 million in 2014/15.
The Chancellor may point to the fact that neither Help to Buy nor Build to Rent are public spending in a conventional sense and that neither will count against public sector net borrowing. However, that only underlines the point that the Treasury is now apparently relaxed about using off-balance sheet accounting for everything except the tenure that has the strongest case for it: changing the public borrowing rules for council housing. He also rejected the case made by councils from across the political spectrum for borrowing caps to be raised to enable them to build new homes.
There was a telling moment on the Today programme this morning when Evan Davis asked Osborne why he did not just build more social homes. Osborne responded: ‘I don’t think the solution to our housing situation is to build many, many more social homes.’ The Budget was true to his word: his solution is state support for £600,000 mortgages and mortgage guarantees for second home owners.
4) Where are the cuts still to come? For the second time in six months, the Office for Budget Responsibility has increased its forecast of the cost of housing benefit. The fiscal outlook it published alongside the Budget reveals that, thanks to more detailed modelling of housing benefit entitlement ‘to reflect differences in population and rent growth in different regions’, it now believes the total will be £3.7 billion higher over the next five years than it said in December. The extra cost of £500 million in 2013/14 is more than the saving claimed from the bedroom tax. That would be eye-catching enough on its own. However, the December figure was itself £2.8 billion higher over the next five years than it said in March 2012.
All of which raises the question of the cuts that were not spelt out. The Budget apparently brought no new cuts in welfare – a first for a statement from Osborne – but there was ominous talk of ‘a firm limit on a significant proportion of anually managed expenditure (AME), including areas of welfare expenditure’. The implications for housing benefit are unclear but in the era of the bedroom tax and universal credit any more cuts in benefits could lead to increased rent arrears. We already know that many benefits will be increased by just 1 per cent regardless of the level of inflation but there could be even more pain to come in the spending review in June.
Originally posted on my blog for Inside Housing