In the UK, the term “housing crisis” has become a major part of our vocabulary over the last few years, however this is not a recent problem and we are only just seeing its worst consequences.
Since the 1970’s, in England an average of 160,000 new homes have been built each year. The National Housing Federation have reported that for current demand to be adequately met and the backlog to be covered, 340,000 homes must be built each year in England. But not only is there an extremely high demand coupled with a shortage in supply of housing in the UK, the housing that is available is extremely expensive and unaffordable for many. From 2000 to 2007, the average house price more than doubled from £100,000 to £225,000 respectively, before the economic crash brought the boom to an end, where housebuilding also fell to its lowest level since the early 1930’s. The ever increasing ‘housing gap’, measuring the difference between the current housing stock and the number of houses that would be needed for everyone to have an adequate home to live in is currently more than one million homes Many government policies have been put in place to try and reduce the shortage of housing supply and resolve the current housing crisis for people living in the UK.
Announced by George Osbourne, the ex-Chancellor of the Exchequer, at his budget speech in 2013 and branded as “The biggest government intervention in the housing market since the Right to Buy scheme” was the Help to Buy (H2B) Scheme. This scheme was introduced to help first time buyers or previous homeowners who no longer own a home, onto the property ladder. The two elements to the scheme include the equity loans element and the mortgage guarantee element. The equity loans allowed borrowers to borrow up to 20% of the property value, or 40% in London, as a loan, which is interest free for the first five years, of a new-build home provided they could supply the 5% deposit. This means that with said 5% deposit, homeowners would only have to secure a mortgage worth 75% of the property, or 55% in London. Allowing people with less savings and those who cannot afford a 100% mortgage to attempt to permeate the housing market.
The mortgage guarantee element involved the government acting as a guarantor for the potential buyers. This encouraged lenders to give loans to buyers with small deposits knowing that if the owners did not pay the mortgage the lenders could reclaim their money from the government. By introducing this scheme, the government is aiming to boost the economy giving more people, especially first-time buyers, the ability to make a long-term investment into their own home.
However, there are a few downfalls to the H2B Scheme. The main issue arises when repaying the equity loan, as if the property has increased in value, the government still own a proportion between 1% and 20%, again 40% in London, of your home. For example (based in the UK, excluding London), if the property was valued at £100,000 when purchased, the government could’ve lent you a maximum of £20,000. When repaying the loan, the property value could’ve increased to £150,000. The proportion of the property that the government own is still 20% and you would therefore have to pay back £30,000. Although you would still be making a gain on the property price rising, this is still another £10,000 more than previously borrowed that has to now be paid back.
Another government policy related to the H2B Scheme is the Help to Buy Individual Savings Account (H2B ISA). The H2B ISA allows future buyers to invest money into the ISA every month in which the government would pay a 25% bonus of up to £3,000 on top of their savings when going to secure a mortgage for their first home. The H2B ISA was discontinued on 30 November 2019; however, account holders can still deposit money into the account and receive the government bonus should they have opened the account before the deadline. Comparable to the now discontinued H2B ISA is the Lifetime ISA (LISA). This can be used for both buying a house, or retirement. Funds can be deposited of up to £4000 per year into the LISA at any point during the year. Similar to the H2B ISA, the government will pay into the account 25% per year of the sum the account holder has saved. However, unlike the H2B ISA, account holders can deposit any sum of money they wish and as regularly as they wish, so there are no restrictions on saving every month. These ISA’s are both ways that the government is attempting to
In 2015, the Conservative government, under David Cameron, pledged to build 200,000 homes by 2020. Said homes were to be sold at 20% discount and exclusively to first time buyers under the age of 40 to raise the number of people on the housing market. The November 2015 Spending Review set aside £2.3 billion to support the delivery of only 30% of these 200,000 homes – or 60,000 homes. By July 2018, the National Audit Office hadn’t witnessed any progress and after investigation, found that £250 million of the budget had been spent on buying the land to build the homes on, however no building had started. (Davies, 2019)
“The real problem behind the ongoing housing crisis is unresponsive supply” (Cheshire and Hilber, 2019). Cheshire and Hilber argued that both inter-generational and inter-regional inequalities have increased due to the inability of under 40-year olds to buy their own property. Stating that younger generations have lost out as they have no access to buying properties, and now ever decreasing access to renting adequate housing in places where there are jobs.
“For decades, the pace of house building has been sluggish at best.” (Sajid Javid MP Secretary of State for Communities and Local Government, 2017)
More than a third of new homes that were granted planning permission between 2010/11 and 2015/16 have yet to be built.
Ian Mulheirn (2019), chief economist at the Tony Blair Institute for Global Change, however, states that “The real culprit for sky-high house prices is low global interest rates that have made it easy for homeowners and investors to take on large amounts of mortgage debt and pay even more for houses.” As the demand curve for housing lengthens and the supply curve does not respond, this causes pricing to remain above the market equilibrium price and does not allow the market to clear. This suggests that even if there is adequate housing supply, only the supply of housing that is available is too highly priced and too little of the supply is social housing. After adjusting the property price increase for inflation, the average house prices were 152% higher in 2015/16 than in 1995/96. After adjusting net family income over the same 20-year period of those aged 25 to 34, their net family income only increased by 22%, thus making it even harder for younger families to secure housing and enter the housing market. Although encouraging, the view that there is no shortage of housing is ‘fake news’ and the only way to resolve the current crisis is to build more homes. (Cheshire and Hilber, 2019)
Today, the housing market in the UK is in complete uncertainty due to not only the economic climate, but the global challenges that we are facing – particularly the outbreak of the Coronavirus, or COVID-19. The UK has put the entire property market on hold and is encouraging buyers and sellers to delay any transactions after the government put into place the social distancing and lockdown rules. Following the Bank of England’s decision to cut their base interest rate from 0.75% which has been in place since August 2018, to 0.25% in March 2020 and further decreasing to 0.1%, banks and building societies have drastically reduced the amount they are willing to lend. The global pandemic is also causing uncertainty for citizens livelihoods and incomes, leaving lenders such as Barclays stopping accepting applications on products with a loan-to-value above 60%.