What does the budget really mean for the housing crisis?

The government’s claim to be tackling the housing crisis dominated budget headlines. But, introduced as offering a leg-up for struggling families, it quickly became clear that the housing policies give a hand-out to Osborne’s millionaire friends. Paul Kershaw explains what the budget really means.

Home ownership

The chancellor announced spending of £3.5 billion on a ‘help to buy’ programme under which the government loans 20% of a deposit and the buyer puts up just 5% for a new build home.

They also announced a scheme to underwrite an eye-watering £130 billion of mortgage lending available for any house.

Although ministers kept saying this was ‘intended’ to help new people into the market it quickly became clear that it would be open to buyers of second homes.

So at the same time as a ‘spare’ bedroom tax hits the poor, the Con-Dems are introducing a second home subsidy.

Housing boom?

The Telegraph reports the planning minister, Nick Boles, as speaking unguardedly at a Mayfair reception for property developers.

Referring to new homes he stated that he “couldn’t care who owns the bloody things”. According to the Telegraph, Boles indicated that the main aim was to create a housing boom.

The Daily Mirror dubbed George Osborne ‘snob the builder’ but these policies have been welcomed in some quarters.

Shares in construction companies rose and the Telegraph reported affluent house hunters contacting estate agents in some of Britain’s most expensive postcodes to ask how they can benefit from the new state mortgage assistance scheme.

Osborne said the initiative would help families who “cannot begin to afford” the large deposits currently needed to get a mortgage at a good interest rate, but high earners can also access the multi-billion pound scheme.

The Telegraph quotes an up-market estate agent: “I’ve had a few calls to discuss this, which is surprising given that the sort of people we deal with aren’t usually associated with help getting a mortgage,” he said.

“Given the limit at £600,000 and lack of salary cap surely this is going to appeal to those wanting really quite nice property – for example three-bedroom flats and houses in Battersea and Wandsworth. If I was being cynical I’d call those Tory voters.”

With an eye to the future, even some Tories see dangers. Ambitious Tory MP Kwasi Kwartang warned of the risk of asset price inflation.

The policy will increase demand by easing credit, but there is no evidence that supply will increase to match.

In the Financial Times, James Mackintosh asked: “Does he [Osborne] really think encouraging higher leverage [borrowing] among homeowners so they can buy houses which are overvalued on almost any long-term measure makes sense?”

Mortgage of the living dead

If hard pressed home buyers are drawn in who are dependent on the current low interest rates they will find themselves with a ‘mortgage of the living dead’ if rates rise.

This scenario would result in mass defaults in some ways comparable to the sub-prime crisis that hit the US state-linked mortgage lenders Fannie Mae and Freddie Mac during the financial crash.

Osborne appears to have learnt nothing from the crash, representing a capitalist class addicted to parasitical finance-dominated capitalism.

Private rent sector

In an important move that got few headlines, government money to attract institutional investors to the private rented sector was increased fivefold from £200 million to £1 billion.

Not surprisingly the initial £200 million ‘Build to Rent’ fund was quickly oversubscribed conjuring an image of pigs at a trough.

Of course there is no plan to regulate the private rented sector, offer secure rather than short term tenancies, or control rent.

The government-commissioned Montague report recently raised the idea that private renting could supplant social housing and many observers doubt that the home ownership initiatives will actually expand house building.

LSL property services commented: “It is the private rented sector that is increasingly picking up the slack and having to support more and more tenants.

“Demand is astronomical, and tenant numbers look set to increase even further this year. On the same day as the budget, the UK is also digesting a rise in unemployment – plus a fresh fall in gross mortgage lending.

Build houses!

“And if this wasn’t enough, property prices are now mounting a fresh rally, while struggling first time buyers face a mounting burden from wider inflation.

“In this tough economic climate more would-be homebuyers will find themselves forced into the rental sector.

“Until the economy can sustain real wage growth, the sails of the private rented sector will be billowed by record numbers of tenants.”

That is a more realistic assessment than the government propagandists who promise an expansion of home ownership.

Disgracefully, the TUC Touchstone blog described the ‘Build to Rent’ money as “Welcome but not enough” (20 March), seeing it as a boost to the construction industry.

Labour too has called for incentives for the private rented sector in exchange for a vague call for more rights for tenants.

Why not call for a massive programme of council house building instead? Shouldn’t the workers’ movement be calling for building secure, cheap social housing rather than an expansion of private landlordism?

Social housing

Osborne announced a further boost to the discount for ‘right to buy’ sales of social housing. The government claims that the proceeds will be used to replace properties sold with affordable housing.

But they mislead when they describe this as ‘like for like’ replacement as the new ‘affordable rent’ homes have far higher rents than the old ‘social rent’ homes.

The policy is presented as increasing home ownership but almost a third of homes sold under right to buy have ended up in the hands of private landlords – in conditions of austerity and recession the proportion is likely to get even higher.

The Lib Dems were supposed to have extracted money for social housing in exchange for supporting the increased ‘right to buy’ discount but they got a pathetic £225 million, a fraction of the £3.5 billion to support mortgages.

The government estimates that 240,000 new homes are needed every year, currently around half that are built.

The coalition started with a massive 63% cut in grants for social housing and the promise that the private sector would fill the gap and ‘get Britain building’.

Housing benefit

In fact house building has fallen from the low level inherited from the previous Labour government. Homelessness acceptances are up 10% since 2011. Rough sleeping is up by nearly a third.

Since the 1970s governments have been reducing money spent on building social housing and since the 1980s right to buy has been reducing the stock.

Politicians and the press talk about immigration but this, and the unwillingness of private builders to build despite high prices, is the reason for the housing shortage.

High housing costs mean that nearly one in five households rely on housing benefit and the over £20 billion spent on housing benefit dwarfs the budget housing announcements. This money does not make tenants rich, it goes to landlords.

All the major parties propose combinations of benefit cuts, yet more ‘incentives’ for private landlords, and backing for banks and private builders.

We need a political voice that argues for a cap on rents not benefits and a massive programme of social house building which would actually save on the housing benefit bill.

In 2008 the bank bailout package cost the government £500 billion – instead of offering the banks further guarantees they should be nationalised and used to support council house building and other socially useful projects.