Matthew Oakeshott: Keeping mortgage rates low places a ticking time bomb under the housing market

Midweek View: Britain needs to build far more affordable rented homes to boost growth and create jobs now, not in 10 or 20 years’ time

House prices are too high all over Britain and the Government’s Help to Buy could soon become “Help to Boom and Bust” – as house prices surge again in the South of England. The homelessness charity Shelter has published a devastating report on solutions for the housing shortage which shows house building is now half what it must be to meet Britain’s needs. The Royal Institution of Chartered Surveyors (Rics) also stresses the need for far more affordable housing and for local authorities to be free to borrow to build homes without Treasury restriction.

Rics’s report, More Good Housing and a Better United Kingdom, makes an innovative proposal to stop sales depleting our social housing stock even further: tenants could build up a portable right-to-buy discount, which they could use to move out and buy a privately owned property when they want, leaving their council home for another family in housing need.

Only 108,000 homes were completed in England in the last year – the lowest peacetime figure for 90 years. And only 103,000 were started. In the 1970s, when I served on Oxford City Council’s housing committee, more than 300,000 homes a year were built – 100,000 of them social homes at affordable rents. We must get social house building going again – at least 50,000 council and housing association homes a year as the keystone to another 100,000 homes a year in all.

Bribing developers to build more homes for sale is a tried, tested and failed policy. Between 1997 and 2007, house prices trebled, mortgage lending rocketed from £90bn to £360bn a year, but house building stagnated.

Land banking and gambling on housing cycles has been at least as profitable as actual house building for big developers – their business model is basically land speculation with a small house building operation on the side. They have a direct financial interest in keeping supply down and house prices up.

Construction is the big black hole in our economy. Our national income is still 4 per cent below its 2008 peak – but construction has collapsed by 19 per cent. Britain needs to build far more affordable rented housing to get growth going again and create many more jobs now, not in 10 or 20 years’ time on long-term projects like the High Speed 2 rail link. If we built 100,000 more homes a year, there would be 500,000 more jobs because building one home provides five jobs for a year.

Ninety-two pence of every £1 invested in construction stays in Britain. And 56p of every £1 spent on public sector home building comes back to the Treasury – 36p of it directly saved on tax and benefits. There’s no bigger bang than building for taxpayers’ bucks. Two million families are struggling on council house waiting lists. And 2 million council homes have been sold since 1979 – three-quarters of a million by Labour under Blair and Brown.

That crusade by Margaret Thatcher won the Tories millions of votes but now costs taxpayers billions of pounds. Over the current spending round we will pour out more than £100bn in housing benefit – that’s £3,000 for every taxpayer – so that buy-to-let landlords can freeze out first-time buyers and charge sky-high rents, often for those same ex-council properties that were flogged off for a song at taxpayers’ expense. It’s short sighted and bad housekeeping.

In 1975, more than 80 per cent of public expenditure on housing went on capital investment to boost supply, with very limited rent rebates and subsidies. Now that’s reversed, with 85 per cent of spending boosting demand through housing benefit. That just reinforces failure to build and forces up rents.

The Budget boosted demand for housing by guaranteeing private mortgages, but it did nothing for supply. It’s dangerous to fire just one barrel of the housing shotgun to force up house prices. In many parts of southern England – and not just central London’s fashionable hotspots – house prices and rents are heating up ominously, even before the forthcoming mortgage guarantee scheme in January 2014 pours £12bn of fuel on the flames. It might help the feel-good factor with existing homeowners for a Chancellor seeking re-election – but it’s divisive, deeply damaging for social and labour mobility, and agony for first-time buyers and renters.

UK house prices remain way above their long-term ratio to average earnings, which are flat as a pancake. But artificially low mortgage interest rates are ticking time bombs under house price affordability and will give millions of home buyers serious grief when the Bank of England phases out quantitative easing, as it eventually must.

The Treasury must end the ban on councils borrowing to build. And it must widen the private home buyers’ guarantee to empower massive investment in housing association and council building programmes by pension and insurance funds. They would love to invest hundreds of billions of pounds because they can’t get the returns they need on other investments when interest rates are so low.

If they don’t, growth will keep stuttering and millions of families will struggle on the treadmill of trying to pay for a high-priced, low-quality home.

Matthew Oakeshott is a former Liberal Democrat Treasury spokesman in the Lords. A version of this article has  appeared in Property Week.

PROMOTED VIDEO
Arts and Entertainment
glastonbury
News
i100
Arts and Entertainment
Shock of the news: Jake Gyllenhaal in ‘Nightcrawler’
filmReview: Gyllenhaal, in one of his finest performances, is funny, engaging and sinister all at once
Arts and Entertainment
Shelley Duvall stars in Stanley Kubrick's The Shining
filmCritic Kaleem Aftab picks his favourites for Halloween
News
people
Arts and Entertainment
Kit Harington has been given a huge pay rise to extend his contract as Jon Snow in Game of Thrones
tv
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Taste the difference: Nell Frizzell tucks into a fry-up in Jesse's cafe in east London
food + drinkHow a bike accident left one woman living in a distorted world in which spices smell of old socks and muesli tastes like pork fat
Sport
Luke Shaw’s performance in the derby will be key to how his Manchester United side get on
footballBeating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
Life and Style
Google's doodle celebrating Halloween 2014
tech
Arts and Entertainment
Don’t send in the clowns: masks and make-up conceal true facial expressions, thwarting our instinct to read people’s minds through their faces, as seen in ‘It’
filmThis Halloween, we ask what makes Ouija boards, demon dolls, and evil clowns so frightening?
News
peopleFarage challenges 'liberally biased' comedians to 'call him a narcissist'
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Finance Assistant - Part time - 9 month FTC

£20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

Marketing Manager

£40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

Market Risk Manager - Investment Banking - Mandarin Speaker

£45,000 - £65,000: Saxton Leigh: Our client is a well-known APAC Corporate and...

Compensation and Benefits Manager - Brentwood - Circa £60,000

£60000 per annum: Ashdown Group: Compensation and Benefits Manager - Compensat...

Day In a Page

The drugs revolution starts now as MPs agree its high time for change

The drugs revolution starts now as MPs agree its high time for change

Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

Gotcha! The camera is turned on tabloid editors

Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

Fall of the Berlin Wall

It was thanks to Gorbachev that this symbol of division fell
Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

What makes ouija boards and demon dolls scary?

Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

Rose Rouse's safari in modern Britain

Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

'My world of no smell and odd tastes'

A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

Matt Parker is proud of his square roots

The "stand-up mathematician" is using comedy nights to preach maths to big audiences
Paul Scholes column: Beating Manchester City is vital part of life at Manchester United. This is first major test for Luke Shaw, Angel Di Maria and Radamel Falcao – it’s not a game to lose

Paul Scholes column

Beating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

Frank Warren column

Call me an old git, but I just can't see that there's a place for women’s boxing
Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

Adrian Heath's American dream...

Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
Simon Hart: Manchester City will rise again but they need to change their attitude

Manchester City will rise again but they need to change their attitude

Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes