House prices are on the rise again, but incomes are yet to take off. On average, houses bought by first time buyers are over four times average earnings; in London, the ratio rises to 7.5. And the OBR is expecting house prices to grow even further – by 8.5% this year, and 7.8% in 2015. Housing affordability is turning into a political headache. Yesterday we had a range of announcements from the Chancellor on Help to Buy, Right to Build, regeneration, garden cities, helping small developers and making it easier to switch buildings from business to residential use.
As the SMF showed in its Politics of Housing report, getting enough houses built is a huge political challenge. The Government’s own forecasts of household growth suggest we need to build around 250,000 homes a year. We haven’t built to this level since the 1970s. In 2013, we only built 110,000. Even before the crisis, the level of new homes built hovered around 150,000 a year.
There are a number of reasons for this: but one of the fundamental ones is that existing homeowners tend to be less keen on more homes being built in their local areas. And even when voters recognise that house prices are becoming problem, they tend to prefer Government to provide financial assistance – like Help to Buy – rather than the building of more homes.
Home ownership reached a peak in the 2000s. We may be reaching a tipping point whereby voters are increasingly persuaded by the need to build more. But for the moment, the Chancellor is being cautious. This Budget was all about trying to push more house-building, but in the most voter-friendly way possible.
Hence we have the extension of Help to Buy for new-builds. We have regeneration and the development of a garden city in Ebbsfleet. Garden cities work well politically because there are few existing homeowners to resist development in the area. Switching buildings from business to residential use adds more homes without reducing green space. Right to Build is a promising idea to free up supply, but is likely to be sufficiently small-scale to avoid angering local residents.
In his Budget statement, the Chancellor said that taken together, all the measures announced would “support over 200,000 new homes for families”. But these are very unlikely to be all additional new homes, appearing to include 120,000 homes expected to be bought through Help to Buy by 2020, many of which would have probably been built anyway. Given household growth, we need many more homes than this – we need at least an extra 100,000 a year over the next 20 years, on top of what we are already building, amounting to an extra 2 million homes in total. Much more radical action on planning will be needed to bring the uptick in house-building needed to make homes affordable again. However, in the year before an election, that would most likely to a political step too far.