Housing

Can We Rebuild Our Housing Market, or Is It Demolition Day?

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Problems with the housing market in Britain are certainly not new, but they are persistent. To put it simply, the UK does not have enough homes, and in turn, housing is increasingly unaffordable. For decades, house building has occurred too slowly, failing to keep up with the growing population.

This shortage of homes has resulted in soaring house prices and increasing rents, the effects of which are felt most acutely by the worst off in our society. Even well-paid professionals are often ‘priced-out’ of the market, with the average home in Britain costing close to 8 times average earnings.

Today, overall owner-occupancy is only 63%, and this only gets worse for our younger generations. At the crucial family-starting ages of 25-34 owner-occupancy plummets from 67% in the 1990s to just 38% today. This transpires as a high proportion of people living in the expensive private rented sector –  where more than 2.2 million households with below-average incomes spend a third or more of their income on housing. For those on the lowest incomes, a severe shortage of social housing has provoked relentless overcrowding and homelessness.

While successive governments have made staunch commitments to this problem, little progress has been made. Past recessions have devastated the housebuilding industry, augmented the lack of housing supply and cut the possibility of first-time buyers getting close to the market. Due to the Coronavirus pandemic and the economic disruption it has caused, profound action is required to avoid these recessionary impacts and fix Britain’s housing market.

So, is there any way to rebuild or broken housing market? While there is no quick or easy process even to solve the profound problems, there are two key areas that could make a real difference.

First is the housebuilding industry. This sector was affected sharply and deeply by the 2008 financial crisis, with housing starts in England falling by 54% between 2007 and 2009. This is a situation we must prevent repeating as we recover from the pandemic. However, we are already witnessing an immediate impact as building sites up and down the country shut down.

To ensure the sector’s survival, financial support is required to maintain housing supply and avoid the significant and prolonged economic harm associated with a housebuilding slump. Measures must focus on supporting SMEs, who are often disproportionately affected, alongside larger companies. 

Following the pandemic, we could witness a reduction in housing supply of over 76,000 homes. Problematically, the industry is unlikely to recover for many years, taking over 6 years to reach recovery after the last financial crisis. That is why we need a scheme to support housebuilders in maintaining, rather than increasing supply. Providing easily accessible grant stimulus from the government during this challenging recessionary period to builders would immediately prevent industry collapse.

Cash grants for each new house built would benefit small and medium builders alongside larger housebuilders, allowing supply to continue and preventing unemployment. Such payments would only be a burden to the government in the short-term, being removed as we see the market naturally recover and supply increase once again. Given the urgency of the crisis, this is a step that could be taken quickly and easily.

However, supporting housebuilders alone is unlikely to fix our housing market. The government must also turn to the mortgage market. Their promises of long-term, fixed-rate mortgages must materialise at pace. As we recover from the pandemic, the housing market must move away from buy-to-let investment. Access to mortgages must favour owner-occupiers and first-time buyers.

Research shows that 3.6 million people have been locked out of the housing market since the 2008 financial crisis. This is not solely due to issues of housing supply, but mortgage requirements that favour buy-to-let landlords. Although millions can afford mortgage repayments, higher deposit requirements make getting on the property ladder completely unaffordable.

The current government’s manifesto commits to long-term, fixed-rate mortgages to address this issue, explicitly targeting first-time buyers. Now, more than ever, this is a necessity. Following the 2008 crisis, first-time buyer mortgage availability was devastated. LTV rates fell from 95% to 85% on average, causing the deposit required to triple in size. Stress tests mean mortgage applicants are tested at 3% above the policy’s reversion rate.

By addressing these factors, the government would quickly increase affordability. Affordable homeownership could reach 1.9 million households by removing the requirement to stress-test at such a high level and ensuring 95% LTV mortgages were offered. It is down to the government to support this new market’s development and equip the private sector with the confidence and means to fund it.

As the pandemic persists, the government must support the housebuilding industry to prevent sharp reductions in supply we have seen in the past. Simultaneously, making it possible for first-time buyers to get on the property ladder, through fixed-rate, long-term mortgages. Together with reforms to the planning system and regulatory changes, these measures will be crucial in the immediate response to the pandemic and ensuring our housing supply and housebuilding industry’s longevity.

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