What help for housing?

Originally posted on insidehousing.co.uk on April 23.

An extension of Help to Buy looks likely, a stamp duty holiday probable, but what else should the government do when the housing market eventually emerges from its Coronavirus freeze?

Vested interests are already out in force making their case and can cite the effect of a downturn on housebuilding numbers, the economy and tax receipts in their support.

And if anyone is feeling a sense of déjà vu this is of course pretty much where we were in 2008, when the housing market slumped in the wake of the credit crunch.

Interventions back then via the Homes and Communities Agency were vital in rescuing a housebuilding industry that had over-extended itself during the boom but there were also stamp duty holidays, support for mortgage lending, cuts in regulation and eventually Help to Buy.

However, as some argued at the time, the government was too slow to seek a quid pro quo for all that support. Cuts in ‘red tape’ were a huge implicit subsidy to housebuilders and while Help to Buy undoubtedly increased output, the impact was even greater on share prices, dividends, profits and executive bonuses.

In the current crisis it is already clear that there will be a big fall in transactions this year and likely that there will be knock-on effects in terms of unsold homes and house prices.

But, as Neal Hudson notes, there are so many uncertainties that it is hard to make any firm predictions right now.

If the big housebuilders look better equipped to withstand the impact than in 2008 – for example, cancelling or deferring £1.6 billion in dividend payments gives them a cash buffer – smaller firms will inevitably come under pressure.

Housing associations will also feel the strain but have the option of converting unsold homes for market sale and shared ownership to social and affordable rent, though they may need grant to do it.

And there will be particular effects on builders, associations and build to rent investors with expensive large-scale urban developments to finance.

Even if the lockdown starts to be relaxed in the next few weeks, housing market uncertainty will linger on until it is clear what is happening to prices and buyers feel confident enough to take the plunge.

If the economy recovers relatively quickly and the housing market is supported by record low interest rates and government action, then existing divisions between housing haves and have-nots could be exacerbated.

If the downturn is prolonged, significant house price falls could open up two big problems for Help to Buy.

First, recent buyers could be plunged into negative equity, or at the very least be trapped in their starter homes and unable to move.

Second, any prolonged fall in prices would affect the value of the government’s stake in the scheme, which is technically not spending but a set of financial transactions relying on its balance sheet.

That would put extra strain on public finances that are already under huge pressure but also revive one of the original objections to the scheme – that the government’s stake means it will be forced to intervene to keep it going.

And that would revive the whole question of the quid pro quo, especially when estate agents and housebuilders have also made extensive use of government support to furlough staff.

One option might be to link it to housebuilder support for the proposed First Homes scheme but there were already enough issues with that and there are bigger priorities now.

A better option might be to broaden support for the housing market in a way that delivers more affordable homes – Help to Rent to match the Help to Buy.

A month ago Labour MPs Meg Hillier and Karen Buck called for a housing market package that would allow social landlords to buy unsold homes from housebuilders and turn them into homes for social rent. Last. The idea was unsurprisingly backed by the National Housing Federation.

This is also what happened in the housing market crash of the early 1990s (and on a smaller scale in 2008).

Interventions in the earlier crash included a stamp duty holiday, extended benefits for home owners and a mortgage to rent scheme but they culminated in the launch of the Housing Market Package in November 1992.

This gave housing associations £612 million in grant (more than £1 billion in today’s money) to buy unsold new-build and existing homes, with the pot boosted by associations’ ability to raise private finance on the back of it.

The results were not all good (some landlords found that acquired stock was unsuitable for long-term rental with high maintenance costs) but the package contributed to what I still think is the highest level of investment in social housing in the last 40 years.

This time around the scheme could be aimed partly at tackling homelessness, continuing the emergency work done by local authorities.

But it could also be targeted explicitly at key workers – not just nurses, but healthcare assistants, paramedics, porters and cleaners and not just in the NHS but supermarket workers, bus drivers, refuse collectors and all the others whose work has been essential during this crisis.

However, Coronavirus could lead to a prolonged economic crisis with much greater effects on the housing system. If, despite all those billions in government support, it leads to redundancies and lost earnings on anything like the scale that some analysts fear, the result will be a wave of rent arrears, evictions and homelessness.

Renters will need at the very least an extension of temporary fixes like the increase in Local Housing Allowance and notice periods but also more permanent solutions (starting with rapid implementation of the ban on no-fault evictions).

Landlords will face increased financial pressure, with dire effects on those that are most over-extended that could feed back into the rest of the market as they are forced to sell.

And that means that even more radical interventions from central government could be required.

Ideas like QE for housing that seemed a step too far in the last crisis may yet be needed this time around but there will be competing demands for more deregulation and potentially more austerity to fix the public finances.

And that’s just for starters. This already looks like a crisis that will profoundly affect the way we work and live our lives with long-term implications for everyone involved in housing.