Hammond's Budget pours more fuel on the house price fire
The plans announced in the 2017 Budget may help to tackle Britain’s housing shortage in the long term. But in the short term, the extension of Help to Buy and the abolition of stamp duty for first-time buyers is good politics but poor policy.
Prime minister Theresa May and chancellor Philip Hammond visit Leeds College of Building. Photo: PA
It is widely acknowledged that Britain has been under-supplying new housing for the last three decades. But, at long last, we have a government that seems determined to do something about it. Its housing white paper, published in January 2017, was aptly entitled ‘Fixing our broken housing market’.
The market is ’broken’ because housebuilding has failed to keep pace with rising demand. The result is that the average house price is almost eight times average earnings, a post-war record, making it increasingly difficult for young people to buy their home. Meanwhile, over 2 million low-income working households are spending a third or more of their disposable incomes on housing. In order to fix the broken housing market, we need “radical, lasting reform that will get more homes built right now and for many years to come”.
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Despite its arresting title and its call to action, ’Fixing our broken housing market’ was good on ideas but light on details. Aspirations and consultations get you only so far. Changes need to be made and public money spent.
The 2017 Budget was the government’s opportunity to outline how this new investment would be paid for and delivered. Philip Hammond duly announced a plethora of new proposals and initiatives aimed at tackling the housing shortage.
In order to facilitate an increase in new housing supply, numerous changes will be would be made to the planning system, though these will not apply to the green belt.
Additional funding, including loans and guarantees, will be made available to increase investment in housing supply. Arguably the most eye-catching of these schemes is the proposal for five new garden towns in high demand areas in the south east, funded via public-private partnerships.
New garden cities will be very helpful in the long-term, but won’t tackle the immediate shortage. For that, Hammond announced important funding boosts for ‘affordable’ and council housebuilding.
First, an extra £2bn will be made available to the £7bn funding for affordable housebuilding by housing associations that was announced in October. In total, this initiative will generate about 5,000 new affordable homes per annum for 5 years.
Second, in high demand areas, local authority borrowing caps will be raised to allowed them to build more council homes. The total increase in borrowing will amount to £1bn over three years, enough to generate perhaps a few thousand new homes in total.
Finally, Hammond made two announcements that aimed to show young voters who want to buy their home that the Conservatives are on their side.
He confirmed that an extra £10bn will be made available for the Help to Buy scheme, which seeks to help people to afford the deposit on a new home. It’s very popular with buyers, but critics say it boosts house prices and hence benefits developers and existing homeowners more than first-time buyers.
Much the same is likely to be said about Hammond’s headline grabbing measure, the abolition of stamp duty for first-time buyers. It is likely to be widely popular, but also criticised for boosting prices.
In fact, the Office of Budget Responsibility estimates that the stamp duty measure will result in a pound-for-pound increase in house prices. The main beneficiaries, according to the OBR will be “people who already own property, not the first-time buyers themselves”. It may therefore be an example of good politics, but poor public policy.
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