House-building boom or house-price boom – what can we expect?
With the introduction of top-slice guarantees for mortgages and interest-free schemes for new-home-buyers, the Chancellor stands accused of fuelling a house-price boom rather than a house- building boom.
Will this not encourage another sub-prime disaster where borrowers cannot meet payments when interest rates rise?
Would it not have been better to reduce SDLT?
Would it not have been better to make more funds available for affordable housing? Surely intending buyers want to see house prices reduce, not rise?
It does indeed appear that the Government has taken a gamble with these policies. If house prices fall too much, then it will lose; if it rises too much, then its critics will be proved right. Yet it is a gamble that is likely to pay off.
Mortgage repayment ability and property quality is far superior to that of sub prime.
Interest rates are likely to remain historically low for some time yet. We have just seen a 30 per cent fall in house prices in real terms. Many would-be buyers are paying more each month in rented accommodation. The fear of default is overstated.
A reduction of SDLT would lose valuable revenue that is easy and cheap to collect. Large-scale additional funding of housing through the public sector is just not available. This is the reality of financial constraints.
The Government is therefore gambling on the energy of ownership to provide the confidence to boost activity in the markets. Home-buyers do not want to buy in markets that are falling. They wish to see markets rising if they’re to feel confident to buy.
Finance will not become available at higher loan-to-value ratios until markets start to rise, and the good news could be that markets will rise only slowly given low income growth. This is the right background for housing-market investment.
The success of the Government guarantee plan is likely over time to bring insurance companies into the markets offering insurance indemnities that will fulfil the same top-slice guarantee, allowing many more people to get into the housing markets. Confidence will be restored.
However, it should not be overlooked that this is only one side of the economic coin. Increased interest in the housing markets needs supply to meet demand.
We need to make more land available. Not just swathes of green land outside distant market towns. We have to allow redevelopment at higher densities in towns with existing infrastructure where people want to live.
We have to ensure that local authorities are signed up to the need to identify opportunities and allow more new homes to be built in towns by a reduction in the red tape and regulation that is strangling progress.
If we do not, then the additional demand that might be successfully created will fuel the biggest house-price boom we have ever seen.