Help to Buy and wider housing policy

Originally posted as a blog for Inside Housing.

So much has been written about Help to Buy that by now everyone knows what they think.

If you’re a housebuilder the equity loan scheme introduced in 2013 has meant more new homes and more buyers.

If you unable to get a mortgage, the scheme may have offered a first step on to the housing ladder that would not otherwise have been available but you may be wondering about the quality of your new build.

If you’re a critic, even if you concede the first two points, the biggest impact has been on housebuilder share prices, dividends and executive bonuses.

Evaluations published so far have provided evidence to back up both sides of the argument. On the positive side, 37% of borrowers said they could not have afforded to buy without it; on the negative, that could also mean 63% did not need help.

The new feature of a report published yesterday by the Commons Public Accounts Committee (PAC) is that it takes a step back and considers the impact on the government and on wider housing policy.

As the report puts it, the net result is that the state has financed the creation of the equivalent of a medium-sized building society that now sits on the books of Homes England.

England is not alone in this of course – the United States has had state-owned mortgage guarantee companies since the 1930s (privatised and then nationalised again during the financial crisis) while many other countries have their own versions of Help to Buy.

But it is still an oddity that a Conservative-led government has ended up creating something that would once have been complete anathema to the party.

But what does Help to Buy mean in the longer term? This is a follow-up to a report from the National Audit Office that argued that the scheme will achieve a positive return on investment – by 2048. The PAC considers the wider implications for housing policy.

First off, the widespread assumption up to now has been that the government will end up making a profit from Help to Buy thanks to rising house prices as the original buyers repay their loans.

But that is not the working assumption at the Ministry for Housing, Communities and Local Government (MHCLG), says the PAC report:

‘The Department told us that it expected to make a positive cash return on its investment in the Help to Buy scheme. It confirmed that it had made an 11.5% cash return overall on those loans that had been redeemed so far. However, the Department explained that once the cash return was discounted to account for inflation, in accordance with HM Treasury rules, it was forecasted to make a small loss from the investment, although it regarded the loss to be outweighed by the economic benefits of the scheme.’

That could turn out to be a conservative assumption – redemptions of the first round of loans are running ahead of forecasts – but equally falling house prices could mean a substantial loss.

The PAC concludes that the extra £10bn of funding announced in 2017 to extend the scheme to 2021. ‘might not have been necessary or delivered enough value’ and also question the more limited extension from 2021 to 2023.

MHCLG’s reasoning for the second extension was that:

‘The mortgage market has not yet returned to how it was before the scheme was in place, and lenders are still slightly more cautious in lending for purchases of new-build properties compared to existing homes. For this reason, the Government has decided to keep a scheme in place until 2023.’

If ‘slightly more cautious’ hardly sounds like an overwhelming justification for it, the third round will be limited to first-time buyers and will include regional house price caps.

MHCLG also confirmed that the sale of leasehold houses through the scheme will be banned from April 2021 and that it will also use it to enforce building quality standards and force developers to sign up to the proposed New Homes Ombudsman.

All of those sound like good but long overdue ideas – but why not do it now rather than wait 18 months?

The MPs also asked whether developers that look to renegotiate their contributions to affordable housing and infrastructure could be excluded from Help to Buy:

‘We were disappointed to hear from the Department that it did not intend to use the Help to Buy scheme in this way, despite acknowledging that ensuring developers fund and build the necessary infrastructure was one of the biggest challenges it faces. The Department told us that it had introduced the housing infrastructure fund, worth £5.5 billion, and that this would help release sites with the infrastructure required for new housing developments.’

That might make sense in terms of wider housing supply but the underlying message seems to be that rather than force you to live up to your obligations we will subsidise you even more.

Finally, the MPs ask how Help to Buy fits into wider housing policy. The answer is that it doesn’t, which is not a complete surprise given the ad hoc way it was  introduced and extended.

As I blogged in June, if you can make a case that Help to Buy worked to support housebuilding, you can make an overwhelming one for straightforward investment in affordable homes.

MHCLG could not say how Help to Buy fits into its target of 300,000 new homes a year – the ‘housework’ with which Esther McVey made a property audience cringe in her first speech last week.

And it could not say how it will make up the supply shortfall once the scheme becomes targeted in 2021 and then withdrawn two years later.

That lack of a strategic connection between loans projected to be worth £29bn by March 2023 and the central mission of the department responsible for them says it all about Help to Buy.

A programme dreamt up as a short-term response to problems in the mortgage and housing markets has instead become a long-term feature of both costing eight times its original budget but without much of a strategy about what to do next.