Help to Buy Part 2 – the one where government guarantees mortgages to borrowers with a 5% deposit has attracted huge controversy, with experts going so far as to brand the policy “very dangerous“. It’s too early to say whether it will, as some fear, lead to another housing bubble that the Bank of England may have to burst before it’s too late. But in the meantime, new figures revealed yesterday show the performance of Help to Buy 2’s less controversial older siblings, “NewBuy Guarantee Scheme” and “Help to Buy: Equity Loan Scheme”, which provide government support for purchasers of new-build homes. Catchy titles.
The housing affordability problem is fundamentally driven by a lack of supply. As in all markets, when demand increases, but supply is constrained, prices tend to go up. And so the precursors of Help to Buy Part 2 seem, in contrast, relatively benign. Government uses funds to help people get on the housing ladder, but the funds are linked to the building of a new home. Supply increases with demand, limiting the risk of a housing bubble.
But yesterday’s figures suggest that these schemes are hardly ones to pin our hopes to, despite ministers’ insistence that Help to Buy will encourage more house-building. So far, in six months, 5,375 properties have been bought with the support of the Help to Buy Equity Loan Scheme. 4,450 home purchases have been made with NewBuy since March 2012. In comparison, a range of projections suggest that we have a shortfall between the homes we need and the houses we are building of 100,000 to 150,000 homes a year.
What’s more, houses aren’t being built in the right areas. London is set to see the highest growth in households between now and 2021: almost a quarter of growth is set to come from this region. But only around 5% of the Help to Buy: Equity Loan Scheme loans for new builds were in this area.
Sources: DCLG, Household projections by district, England, 1991- 2021 Live Table 406; DCLG, Help to Buy: Equity Loan scheme and NewBuy statistics, released 21 November 2013.
We need much more radical policies to deliver the homes we need and these shouldn’t be limited by tying new builds into home ownership schemes. These schemes are unlikely to have done much damage so far, but they also have not come close to solving the problem. Demand for new housing, and the prices houses go for, are already high enough to encourage developers to build more. The problem is on the supply side: the planning system and the structure of the development market that’s stopping them from building the houses we need. The early Help to Buy schemes were always going to struggle make a significant dent into the housing shortfall whilst these problems remained unaddressed. Sadly, we’re in even less need of a Help to Buy Part 2.