If the Government continues with Help to Buy, it clearly needs to recognise differences between places.
The UK housing market seems to provide media outlets with daily headlines of rising prices and growing disparities. The so-called ‘national’ house price crisis has now prompted the Prime Minister to consider calls for adjustments to a flagship coalition policy: Help to Buy. Mr Cameron has asked the Bank of England to be wary of a bubble, meanwhile, Mark Carney has consistently pointed to rising house prices as a major risk to the UK economy.
So what adjustments would help?
Help to Buy, in both its guises, attempts to enable more people to afford to buy their own home through mortgages. The idea is that this in turn increases certainty of demand for house builders: “If people can buy homes, builders will build them,” says the housing minister, Kris Hopkins. However this doesn’t seem to be the case; when demand goes up, it has very little impact on supply, and instead simply pushes up prices i.e. over many years house building has proved very price inelastic, this isn’t new. While the Chancellor points to a marginal upturn in house building as proof that Help to Buy is working, most analysts fear it’s stoking demand when supply is constrained, and as history shows us rising prices are inevitable.
As with many policy areas, by looking at this national level, the discussion and policy misses differences between places. We discussed this when the policy was introduced around a year ago, and the issue has become even more pressing. The local differences in housing issues was a key topic in our Cities Outlook 2013 publication, and since then, affordability has diverged even further. Houses in Oxford, for example, cost fifteen times the average salary, whilst in Barnsley it’s a more sustainable five times. House prices rose by over 10 per cent in Cambridge last year, but fell by almost 5 per cent in Rochdale, and the average house in London is now worth five times the equivalent in Burnley. There is clearly no homogenous ‘national housing market’, and therefore using a single national policy with national price bands is clumsy and inevitably misses the spatial nuances.
Currently, the strongest argument to repeal Help to Buy is rising house prices, but the national picture is heavily skewed by London and the South East. Equally, the argument against, is that it could choke-off recovery in weaker areas. If the Government continues with Help to Buy, it clearly needs to recognise these differences between places, and adapt the model to affect different markets in different cities. In practice, this would mean focusing Help to Buy on areas with weaker demand and where prices are low, instead of facilitating more demand in areas where demand and prices are already high.
Different cities have very different housing challenges. It’s time for policy to recognise this with a local model.
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