Cicero Policy Briefer

Issue 15, August 2007

Home Extension: Government reveals plans for more affordable housing

By John Rowland

Housing is once again at the top of the political agenda. Rising interest rates and the number of borrowers potentially facing payment shocks have dominated the commentary recently. However, the structural mismatch between supply and demand will continue to cast a shadow over the housing market long after the impact of higher interest rates has manifested itself in higher arrears and repossessions.

Aspiring first time buyers, though prone to bleating, are certainly standing under the shadow of limited supply. FTBs accounted for 45 per cent of the market of new mortgages in 1997, but only 35 per cent last year1. In the same time period the average house price for an FTB has gone up from £49,725 to £135,0242. Despite the availability of flexible mortgages offering high LTVs and income multiples, young people are increasingly relying on the Bank of Mum and Dad to raise a deposit or help towards repayments. Left unchecked this could allow the housing market to become a driver of wealth inequalities, with home ownership effectively becoming an inherited form of tenure.

This, should it come to pass, would represent a major failure of policy for a Labour government. If quantity of output determined success in housing policy, this Government would be on top of the problem; the most recent addition to the extensive canon of papers, reviews and task forces is the housing green paper, “Homes for the future: more affordable, more sustainable”. By drawing on all that has come before it, the Government hopes the green paper will provide a cogent basis for meeting the need for affordable, quality housing.

The headline proposal is a target for 2 million more homes by 2016, and a further 1 million by 2020. Councils that deliver housing will be rewarded financially. As befits the sustainability moniker, there is a healthy dose of chlorophyll to be found in the form of eco-homes and finally, no green paper would be complete without a celebrity review, this time of shared equity to be conducted by Brian Pomeroy.

The Treasury has allocated funding of £8 billion for affordable housing in this spending round, a substantial increase. But the scale of the challenge should not be underestimated. Some commentators have noted the Government will have to run to stand still: the extra homes (if the target is achieved) will probably just about keep pace with projected demand created by demographic changes such as ageing, immigration and the increase in single-person households.

And while FTBs dominate the limelight, spare a thought for the ones we don’t hear so much about—families stuck in a property that is too small but are unable to trade up. In a research paper for the CML3 Peter Williams notes that it is not just those trying to get on to the ladder who might be facing problems; there is evidence that house moves might be becoming more difficult for existing homeowners, with less trading up and less turnover of stock. This suggests the ladder is not functioning as well as it did. New supply is part of the answer, but ensuring it is the right kind of housing stock will be a difficult balance—we have already seen a glut of flats in some urban centres, while availability of larger homes has been tight.

If the Government really is serious about sustainable development, it needs to look at getting the most of our existing stock. How to encourage the large number of one or two person households to release the family-sized homes they live in and downsize to something that might be more appropriate (particularly if they are elderly) is something we should be thinking about. The green paper is a step forward, certainly, but it does not provide all the answers.

1. CML
2. Halifax
3. Home-ownership at the crossroads? by Peter Williams (Housing Finance, Issue 02, CML, May 2007)

John Rowland can be contacted on +44 (0)20 7665 9539 or click here to email.

Back to main policy briefer