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
Wednesday 24 July 2013
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.
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