One of the constant refrains on Red Brick over the years has been the need to direct Government funding as far as possible towards increasing housing supply, which will help cool prices. We have argued that it is counterproductive to provide a) an ever-increasing amount of public money towards helping people to pay for homes that are too expensive and b) (even worse) heavy subsidies for demand that are likely to lead to an increase in prices.
My colleague Monimbo reported recently on figures compiled for the UK Housing Review which showed how the Government’s housing plans are now distorted massively towards supporting the private market and away from building affordable homes. The Review estimated that market support packages now total £43 billion whereas affordable investment totals only £18 billion. Investment in affordable renting has been cut back to zero if you exclude commitments from the last Parliament.
The Chartered Institute of Housing (CIH) projects that the current combination of policies will result in a loss of 350,000 social rented homes by 2020, a fall of 9 per cent from 2012. The ending of direct investment in social rented homes, and now even in unaffordable ‘affordable rent’ homes, means that ‘section 106’ deals are the last significant source of social rented homes. This source has been reducing and will shortly be virtually removed as ‘starter homes’ get priority. That means any future social rented homes will rely on housing providers’ internal funding, and there isn’t much interest in doing that.
So far, so disastrous. But deep in the financial pages over the past thirty years there has been another concern about the impact that an over-reliance on home ownership within housing policy has on the wider economy. Subsidy over decades and a lack of building has brought about huge price inflation, as we are all aware. This week, Kate Allen, writing in the Financial Times (paywall), discussed a study by the NIESR (who produce an excellent periodic housing market commentary, see here) which argued that rising house prices have been driving down long-term saving rates. In short, people who buy their own home tend to save for their old age at a lower rate, putting their funds into paying their mortgages and growing their personal housing wealth. One outcome is that their pension income is 15% less on average, another is that there is less funding available to pension funds to invest in more productive sectors. The research suggests that policies that prioritise home ownership could have negative effects for other parts of the economy.
The Government’s rather desperate attempts to promote home ownership come under particular scrutiny. Allen quotes Angus Armstrong, NIESR’s director of macroeconomics, saying: “The more you tax incentivise [home ownership], all you are doing is whacking the price up and the more you do that, the more money it is taking away from other parts of the economy. I am not against home ownership but I am against the subsidies we keep pouring into it.”
The implication of the research is that the UK needs a less skewed and more balanced approach to saving and investment which supports the productive economy rather than static wealth creation. Red Brick has often argued that we also need a balanced housing policy, one that aims deliberately to provide homes across the income distribution in a variety of tenures, rather than the ideological pursuit of a single tenure to the benefit of narrow income and demographic groups. It seems that ‘balance’ might be the new watchword.