Owning the future

Originally published on June 30 on Inside Edge 2, my blog for Inside Housing

The shift in subsidy from renting to owning under this government may be obvious but it’s only when you see it laid out in total that you appreciate its scale.

This year’s UK Housing Review Briefing, published at the CIH conference on Thursday, sets out total government support for different kinds of housing from 2015/16 onwards. The total for social and affordable rent is just over £2 bn. The total for home ownership and the private market is a cool 21 times bigger than that: £42.7 bn.

The table was prepared in consultation with DCLG and it includes grant, loans and guarantees so it’s as close to a comprehensive as we can get.

Half of the money for affordable and social rent comes from existing commitments under the Affordable Homes Programme and so is being wound down. The rest comes from the housing revenue account (HRA) borrowing programme, specialist homes and the Department of Health’s care and support specialised housing fund.

Support for the private market comes in two parts. First, there is £6.4 bn of grant for low-cost home ownership. This consists of £4.1 bn for shared ownership and £2.3 bn for starter homes.

Shared ownership is of course part rent-part buy and (unllke with starter homes) profits are recycled back into more affordable homes. However, even if you count half of the shared ownership money as supporting for renting, there will still be £20 of market support for every £1 of rental support.

The other £36.3 bn of private market support comprises:

• Grant of £4.9 bn – mainly the Help to Buy and Lifetime ISAs
• Loans of £15.9 bn – mostly Help to Buy equity loans but also the Home Building Fund
• Guarantees of £15.5 bn – mostly Help to Buy but also the PRS Guarantee.

As the Briefing points out, the lion’s share of this will not count as actual spending or borrowing unless they guarantees are called in or the loans are not repaid.

In normal times, that might be a safe assumption but, as I blogged following the Brexit vote, these are not normal times. A market downturn and fall in house prices could turn these financial instruments toxic.

A downturn could also turn derail the government’s twin objectives of building a million homes (which seems to have gone from aspiration to commitment to target and back to aspiration in the space of a few weeks) and doubling the number of first-time buyers.

Government support for the market is nothing new of course. Tax reliefs for home owners (from capital gains tax and tax on imputed rental returns) are currently worth a net £24.4 bn where taxes (stamp duty and inheritance tax) raise £8.8 bn. Put them together and that’s another £15.5 bn of support for the market.

And some caution is needed about this being the biggest-ever programme of public support for the private market. Mortgage tax relief was worth £7.7 bn a year to owners in 1990/91 before it was gradually phased out over the next 10 years. That is the equivalent of £15.7 bn a year in today’s money.

However, indirect support for the market from the state does not end there. The Bank of England cut interest rates to a record low in 2009 to support the economy in general but many of the benefits have gone to people with mortgages in particular. Collectively they are paying £36 bn a year less in mortgage payments than they were before the financial crisis and low rates have also supported house prices.

Within the budget for renting, the balance has of course already been shifted from social to affordable rent. Figures published this week showed that just 602 homes for social rent funded by the HCA were started in the whole of 2015/16. Now the balance will be shifted from affordable rent to owning, with the only potential bright spots being the determination of the new London mayor and whatever social landlords can finance from their own resources.

And this balance sheet for new homes also does not include the way that existing social homes are asset stripped to support the market. Already social rent homes are being sold under the Right to Buy or converted to affordable rent and the CIH estimates that 300,000 could be lost by 2020.

But that figure does not include more changes in the pipeline as Right to Buy sales will rise as it is extended to housing association tenants, council homes are forcibly sold to pay for the discounts, and more and more homes are lost to estate regeneration.

Put all that together are any of the key elements of our housing crisis very surprising? Unaffordable house prices are inflated by low rates. First-time purchase is only possible with ever-rising subsidy. The private rented sector continues to expand. Homelessness rises. Genuinely affordable rented homes are in shorter and shorter supply. And despite endless rounds of cuts the housing benefit bill continues to rise.