This year, the UK government must come up with solutions to the main crises that eat away at some ordinary Britons’ well-being. One of these is the housing crisis, which continues unabated despite the billions of pounds thrown at the problem.
Home prices have climbed out of the reach of many people, especially in London and the south-east of England, despite — or perhaps, because of — record low interest rates.
In the south-east of England, the wage to house price ratio is 9.5, according to a study carried out by estate agent emoov in May last year. In London, the ratio was 12, going as high as 17 in some of the capital’s boroughs. In the whole of England, it was almost 8.
The jump in house prices was caused by exactly the measures put in place to allow more people to step on the proverbial “housing ladder.”
The Bank of England’s record low interest rates have made the monthly payments for mortgages cheaper than ever. In many places, it is much cheaper to pay the mortgage on a place than it is to pay rent on that same place.
At the same time, the central bank’s purchases of assets such as government bonds and corporate bonds have contributed to a dearth of investments. This has sent institutional investors into alternative assets such as property, and has pushed banks to lend more money for property purchases than they otherwise would.
The government has lent a helping hand, too. Literally. It has issued almost £7 billion in equity loans to property buyers under the Help to Buy scheme since it launched it in 2013, and last October it allocated another £10 billion to it.
The scheme offers equity loans of 20% of the value of a newly-built property outside London and 40% in London, for properties worth up to £600,000. The loans are available both to first-time buyers and to homeowners looking to move, and they are interest-free for a period of five years.
The taxpayer takes the hit if the price of the home falls, but also shares in the gains if it increases, if the buyer decides to sell the property before paying back the loan.
It is in fact a subsidy, and not for homebuyers but for home prices, and especially for homebuilders. Since it was introduced in 2013, home prices have jumped. Help to Buy has come to be responsible for around half of the profits of the country’s biggest homebuilders.
The news last December that the head of second-largest homebuilder Persimmon stands to cash in a bonus worth £100 million raised criticism and even led the chairman of Persimmon and the head of the company’s remuneration committee to resign.
Data from investment bank Liberum quoted by the Financial Times show that more than 55% of Persimmon’s completions relied on the Help to Buy governmental scheme. In this light, it is fair to say that the CEO’s bonus was, in part at least, sponsored by taxpayers. The bonus was so high because Persimmon’s shares rose on the back of good earnings due to the government subsidy.
The leader of the Liberal Democrats, Vince Cable, said the homebuilders’ bonuses were not a reward for housebuilding, but rather for “taking advantage of a government subsidy… which is doing a lot of damage by pushing up prices above the means of young families.”
The new year will be the last full year the UK will spend in the European Union, according to the current Brexit schedule. One of the reasons cited by Leave voters for their decision was the “pressure” that the EU migrants put on the housing sector. As I have said before, the Leave voters were blaming the wrong foreigners for this pressure, and a study published on Monday, January 1 2018 by the Liberal Democrats reinforces that.
After collecting data from around 275 councils across Britain, the Liberal Democrats found that 60,000 properties in the UK have been empty for two years or more. Many of those are part of the “buy-to-leave” phenomenon that sees foreign investors purchasing homes in Britain and leaving them empty, because they only use them as a safe place to park some cash.
Instead of insisting on a damaging no-deal Brexit, the government should take real steps towards dealing with the increasingly excessive gap between the haves and the have-nots in the housing market. This is what would make 2018 better than 2017.