Don Foster MP writes… Housing at the heart of the Budget

House building fell dramatically following the financial crisis and hasn’t yet fully recovered. Last year 118,900 new homes were built in England. But with the number of households predicted to grow by 232,000 a year for the next 20 years and thousands currently unable to get onto the housing ladder, we need to build more than double that each year to keep up with demand, but we also need to tackle the sluggish housing market. That’s why housing was at the heart of the Budget yesterday, with more help for first time buyers and more money for affordable homes.

The Coalition Government inherited a legacy where house building under Labour had fallen to its lowest rates since the 1920s. Since 1979, the number of affordable homes shrank under Labour and Conservative Governments, with each selling off more than they built. There were 400,000 fewer homes after the Conservatives’ 18 years in power and a further 45,530 fewer after 13 years of Labour, increasing pressure on the existing stock of affordable housing. The Coalition Government wants to help those trapped in poor housing by building more homes and to help people get onto and move up the housing ladder. So we’re taking steps to address the chronic lack of housing – no easy task in the current economic climate.

Although there’s evidence to show that some of the measures the Government has already announced are yielding fruit, there’s more that can and should be done to increase housing supply and ensure houses are built where they are needed. The key elements of the package that’s been announced in the Budget are:

  • £225m of grant funding which will help to guarantee affordable housing projects in England and ensure we get good, affordable homes built. This is on top of the £4.5bn of public funding that the Government has already committed along with £15 billion of private investment, to deliver 170,000 new affordable homes over this Spending Review period. It doubles the existing Affordable Homes guarantee programme to support a further 15,000 new affordable homes in England by 2015 and means that, thanks to the Liberal Democrats, the Coalition will be the first government to deliver an increase in social housing during its term of office for more than thirty years. More important than all the announcements though, the figures show that we are on track to deliver this. If we want nurses, teachers and firemen to be able to live in towns and cities, we need to make sure there’s housing they can afford, so I welcome this announcement.
  • Current social rental policy is set at increases of up to RPI+0.5% plus £2 until March 2015. I’m pleased therefore that the Budget confirmed that the Government will set long term rental policy out to 2025 at this year’s Spending Review, giving certainty to social landlords to enable them to plan their future housing developments.
  • A new scheme was announced called Help to Buy. This scheme, which will replace FirstBuy, is aimed at increasing the supply of low-deposit mortgages and new housing. It’s made up of two schemes – “equity loan” where the Government will loan you up to 20% of the value of your new build home and “mortgage guarantee” where lenders will be incentivised to make more mortgages available for people with small deposits. The Help to Buy equity loan scheme will provide £3.5bn additional investment to help people into home ownership as well as providing a boost to the construction sector, while the Help to Buy: mortgage guarantee will support up to £130 billion of high loan-to-value mortgages. Although I admit that the names of some of these schemes could be less similar, this is a really positive step which will help support up to 74,000 households into home ownership.
  • There will be more money for the Build to Rent Fund. This fund is a £200m pot which developers can access to back the construction of rental homes until they are built, let out and managed, giving them the confidence to build now rather than delaying for a year or two. The fund has been hugely over-subscribed, so it’s being increased to £1 billion: £700 million to be spent in 2013/14 and 2014/15, and a further bidding round in 2014 for £300 million. With this scheme proving a success, topping up the pot to make sure that houses are built and that pressure on the rental market is eased is absolutely the right thing to do.
  • Something Liberal Democrats should welcome with open arms is the clear commitment from Government on the need for new houses to be built more sustainably and be more energy efficient, by confirming that they will have to meet “zero carbon” standards from 2016. This policy works hand in glove with the flagship “Green Deal” which aims to improve the energy efficiency of existing housing stock. By May the Government will publish detailed plans, setting out the response to the 2012 consultation on the energy efficiency requirements in building regulations. This will be followed by a consultation on next steps in the Summer. Builders have repeatedly pressed us for certainty on Zero Carbon, so I’m really pleased about this announcement which will both inject confidence into the house building sector and the broader supply chain, and help us live up to our green credentials.
  • Of course there were also announcements some Liberal Democrats won’t be so keen on, for example on Right to Buy where we’re reducing the time before social housing tenants qualify to buy their home to three years and; and raising the discount cash cap in London to £100,000. But, as ever, this package has involved give and take, and where we insisted on more money for affordable housing, our Coalition partners were keen to extend Right to Buy. But I am pleased that the additional receipts from increased sales will be used to pay down housing debt and support the Government’s commitment to 1:1 replacement of all additional homes sold.

There is always more that can be done. I support the idea of unlocking the potential local authorities have to build more houses. Already the Government has allowed councils that have retained council housing to borrow against future rental income (up to a combined “cap” of around £30 billion – with some £2.8bn still available). We could, for example, raise the cap, or let all councils use their “prudential borrowing” powers for house building, or – at the very least – allow Local Government Pension Funds to be used to support house building. The “prudential borrowing” route could enable councils to build up to 60,000 new homes over the next five years. This is a work in progress. It isn’t something we’re delivering now, but I hope it’s something we’ll look at closely in the next couple of years.

The Government has already committed to invest over £11 billion in housing during this spending review period. We are also, building on Andrew Stunell’s excellent work in this area, working to bring thousands of empty properties back into use, including empty spaces above shops. This package builds on the work that’s already ongoing with measures to support those who want to get on or move up the housing ladder, and steps to get houses built. Most importantly, it’s about making sure there’s more housing for the longer term so that the next generation doesn’t face an even worse housing crisis than the one we’re taking action to solve now.

* Don Foster is MP for Bath, Liberal Democrat Chief Whip and Coalition Deputy Chief Whip.

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35 Comments

  • Charles Beaumont 21st Mar '13 - 3:56pm

    The “help to buy” scheme is a nonsense – an easy political gift to Conservatives and their landowning and house-building friends. For a start, why are we helping people to buy houses that cost £600,000? Even in the south of England, that represents a long way up the housing ladder. Secondly, the problem in the housing market is a lack of volume. Talk to estate agents and they’ll tell you they have no problem selling houses, but not enough are on the market. New home construction is at an all-time low and there is little evidence that these measures will have much impact (as they are very similar to existing under-subscribed programmes already in place). Tackling the oligarchic nature of housebuilding and land ownership in this country, in which a small number of housebuilders own 400,000 undeveloped plots, would be a start. For the house-builders, their land-banks have become more profitable than the actual act of building homes – so they don’t even have an incentive to construct. And they have a great incentive not to construct – to keep prices high. It’s a classic case of market failure. Liberals should want the state to force that market open and remove the vested interests being looked after by the Chancellor.

  • jenny barnes 21st Mar '13 - 4:00pm

    Every local council should know how many people are looking for social housing in their area. Rather than all this neo-liberal tinkering, I suggest the following.
    Government sets a requirement on all local councils to start ( and after 2 years max to complete) enough social housing for 10% of those on their social housing wait list.
    Councils are empowered to compulsory purchase suitable agricultural (including greenbelt if appropriate) land to provide space to build these units and some number more – lets say the same number again; the additional land, now with planning permission for residential development can be sold to developers and self builders.
    Revenue from the planning permissions granted to developers, plus loan finance secured against the rents of the social housing, and against reductions in housing benefit etc payouts are used to fund the social house (and flat) building work.

    Likely results : A lot of social house building, a lot of other house building, house prices drop, builders etc get work, plus all the associated goods like carpets, furniture and appliances. It might even help the economy to grow.

  • jenny barnes 21st Mar '13 - 4:02pm

    PS 10% every year, of course, not 10% one off.

  • Richard Harris 21st Mar '13 - 4:53pm

    I’m glad that at a time of austerity the government is helping out those that need a hand buying houses worth over half a million quid. Does anyone want to volunteer why artificially increasing house prices by subsidy is a good thing to do whilst we’re recovering from the effects of a very similar scheme in the US that supported poor loans ?

    Oh, of course, because it will go down well in Tory marginals. So that’s another blinder played by the Lib Dems then!

  • Richard Harris 21st Mar '13 - 5:04pm

    Two other points. my wife and I are about to exchange contracts on a move we’ve been organising for almost a year (not long in the current market). It’s crossed our minds that someone lower in the chain may now pull out because they would rather wait until Jan 2014 when the mortgage guarantee kicks in. Would it not have made more sense for this policy to be announced and started more quickly, or might we see a dip in the market caused by people waiting and seeing?

  • Richard Harris 21st Mar '13 - 5:07pm

    …and the second point… As the guarantee kicks in, does that mean that someone with only a 5% deposit will be paying the same interest rate as someone with a 25% deposit. Does this not put the patient, careful house buyer at a disadvantage against someone who (in the free market) would have to pay more to access a riskier loan?

  • Daniel Henry 21st Mar '13 - 5:34pm

    I’d understand it for first time buyers, but for people buying multiple homes?
    That’ll just drive prices up, making it harder for everyone else!

  • Liberal Eye 21st Mar '13 - 5:45pm

    What Charles Beaumont said.

    Australia already went down this road a few years ago with their “First Home Owners Scheme” which Steve Keen, one of the most perceptive (if distinctly wonkish) economists around, has described as in reality a “First Home Vendors Scheme”. He said so at the time it was introduced and subsequent events have amply confirmed his view; with a slight delay the scheme reignited house prices which continued on their bubbly upwards path until the scheme ended. For a retrospective assessment follow this link.

    http://www.debtdeflation.com/blogs/2011/02/10/a-motley-crew-interview-on-australian-house-prices/

    If one judges this government by its actions rather than its words then its clear that it’s desperate to keep house prices high and prevent market mechanisms operating whatever the damage to would-be buyers and the wider economy.

  • Oh dear, eye catching policy on the hoof with Danny put on Newsnight to spread the ‘good’ news…

    How many times does the party have to see that happen before it pulls the plug?

  • David Allen 21st Mar '13 - 6:07pm

    What we desperately need is a brand new financial bubble to believe in….

  • Simon Bamonte 21st Mar '13 - 6:12pm

    So we are going to help those who already have some money saved towards a home to get their dream homes while at the same time forcing people in social housing (many of them unemployed, sick and disabled) to move against their wishes. A subsidy for the “haves” and more cuts for the “have nots”. The way things are going, I wouldn’t be surprised if the Tories simply decided that shooting everyone who they don’t like (the poor, the disabled, single mums, etc.) was their new policy to help “those who want to work hard and get on”. Danny Alexander could then go on the telly, like the stooge he has become, and explain to us how this is somehow “liberal”.

    I’m not joking, either.

  • Richard Harris 21st Mar '13 - 6:18pm

    @Simon Bamonte
    I’m sure Danny Alexander will be awarded his Honorary Tory Membership in the final throws of this awful regime. Someone should suggest he resigns while he still has some liberal credentials left. Another two years of this and it will be like that scene at the end of Animal Farm.

  • Crazy scheme.

    More easy money for the lenders and developers.
    Higher house prices for new-builds
    Taxpayers underwriting the risk and taking huge losses if house prices continue to fall (as they are doing outside of London).
    Suppressed demand for existing houses, leading to lower prices for existing home/mortgage-owners, some of whom will become unable to sell.

  • Houses cost more than people can realistically pay for them. It’s not about lending it’s about price and income. Also, like everyone else. looking at this scheme I cannot for the life of me see why someone who can pay £600000 on a house needs help.. The whole thing seems like an attempt yo keep house prices high and hand money to people who don’t need it.

  • For the love of God, build some social housing and speed up planning. The market can take care of the rest. If I wanted to see a government inflating a housing bubble I would have voted Labour.

  • Andrew Duffield 21st Mar '13 - 9:50pm

    This just about sums it up:

    http://quantitativepolitics.blogspot.co.uk/2013/03/help-to-buy.html

    And judging by his Commons performance today, I’m not sure Vince gets it any more either – let alone Danny or Don.

    Frightening.

  • To be fair Alistair it was the Tory government that started the whole inflated housing bubble with Thatcher’s introduction of the right to buy scheme.
    Labour then continued with the scheme but i think they reduced the discount. Which does not excuse Labour from continuing the shambolic system which helped continue the housing bubble.
    This coalition government is just making things worse by extending the scheme and the discounts available.

    Then on top of this they introduce this ludicrous help to buy scheme for mortgages up to £600k

    This economic policy is not going to do anything to improve the nations finances. It will push up house prices and increase rents in the private sector which will in turn push up the housing benefit bill.

    The country needs a massive social housing building project, We should be looking at building Pre-fab housing that is relatively cheap, It would be a massive boost to the manufacturing industry, a massive boost to the construction industry, Increase jobs and apprenticeships.
    Only when we have an adequate amount of social housing stock will rents begin to fall in the private sector and property prices will level out at a sustainable level which will support the economy rather than continuing on with this ludicrous and dangerous property bubble that has destroyed economies all over the world.

  • An opportunity has been missed, it seems that no demands have been made of the developers.

    Given the current circumstances the following conditions would make sense:
    1. New houses must conform to the proposed 2016 building regulations concerning energy efficiency and emissions.
    2. The new houses can only use energy that has been reclaimed from existing housing through the implementation of energy efficiency measures.
    3. The new houses must be built by workers who have been continuously resident in the UK since at least 2007 (ie. more than 5 years).

  • Helen Dudden 21st Mar '13 - 10:08pm

    In Don’s area we have around 13,000 waiting on the list. We have heard so much about house building, yet little happens.

    I am not going to argue anymore on this subject, tired of hearing my own voice.

  • If 170,000 affordable houses cost £4.5bn then we need to increase spending on affordable housing to at least £2.65bn a year to provide 100,000 affordable houses a year. This would only be close to the number of council houses built in the 1970’s.

    Don doesn’t talk about Councils using their reserves to build new council houses where the councils sold their council houses to housing associations. We should be putting this forward so it can become government policy.

    Both of these would revive house building more that what is in the budget and if most of these houses were for rent it might even bring down rents and housing benefit costs.

  • people can’t get on the housing ladder because prices are still at bubble levels and, unlike many other countries including the US, the UK government has moved heaven and earth to maintain prices as inflated levels. Whilst extra funding for house building is welcome, continuing to subsidise house buying through cheap finance is part of the problem, not part of the solution, and will simply lead more people into risking significant loss of capital as and when both interest rates and house prices return to more sensible levels.

  • Liberal Neil 22nd Mar '13 - 8:20am

    I agree with a lot of the criticisms above about the plan to help housebuyers to further inflate house prices.

    But there is a package of measures in Don’s post, several of which deal with specific points other comments have raised.

    Overall it does look like this government will deliver a better result on social housing than the previous two governments.

  • jenny barnes 22nd Mar '13 - 8:44am

    “We should be looking at building Pre-fab housing ”
    Yes! Ikea / Boklok houses factory built to high standard.
    http://www.guardian.co.uk/society/2007/apr/02/communities.business
    Under 100k then. I think the house itself costs around 60k£

  • andrew purches 22nd Mar '13 - 9:22am

    Jennie Barnes, you are so right ! I find it rather ironic that immediately after the Falklands conflict, the Thatcher government put into place the shipping of complete prefabricated house ( not mobile homes) from Scandinavia at £ 10000 a shot to rehouse those Islanders who had lost their homesteads. This could be done here so quickly,so cheaply and to a more sustainable standard than any U.K housebuilder could possibly achieve. All that needs doing is to earmark the land over as wide any area as possible, but accessible to existing economic centres, and I would suggest within five years the housing problem could be resolved. The best of these homes,fully fitted can be delivered and erected in about six weeks on land that should be sequestrated if not willingly sold by the land bank holders. Each home ,bulk bought would probably cost somewhat less than a £ 100.000, with an adequate profit built in for the “developer”. Where are you Mr. Colt,of cedar built bungalow fame?

  • @andrew purches
    “All that needs doing is to earmark the land over as wide any area as possible, but accessible to existing economic centres, and I would suggest within five years the housing problem could be resolved. ”

    Yes, that is all that is needed with regards to the shortage of houses in the south-east. There is plenty of land suitable for development in the UK – politicians simply lack the will to do anything about it and instead come up with schemes aimed at keeping house prices as high as possible because they know that the majority of the electorate already own their own home and quite like the idea of prices going up, despite the disastrous consequences for the economy and our youth.

  • Helen Dudden 22nd Mar '13 - 10:49am

    It looks as thought they will produce something. These measure outlined by the Conservative Government and its coalition partner, the Lib Dems are of course in favor of the private sector.

    What 10% of 13,000, all I can is things have to change here, I now of petitions, disagreements, and at least three areas that have declined the need to build.

    I would love to see this succeed but I don’t see how.

  • Helen Dudden 22nd Mar '13 - 10:50am

    sorry about bad spelling terrible cold.

  • Pre-fab housing is a good solution to the situation we are currently in, namely a relatively short period of having a population bulge. It is obvious that 60m and certainly 70m is an unsustainable population and hence a sensible strategy is to reduce it, firstly to 1998 levels (upon which we signed the Kyoto agreement) and then to a long term sustainable level of circa 35m. These reductions would naturally remove the need for these houses and therefore they can be scrapped and the land used for other purposes.

  • David White 22nd Mar '13 - 3:22pm

    This Wizard (neo-liberal) Wheeze of Gorgeous Gideon’s department of state is a gift to Tory voters who wish to inflate the prices of the homes they already own.

    Beyond this new nonsense, the government believes that the UK could build its way out of the current economic depression – it stopped being a recession long ago! The reason for this belief is the massive housing boom during the inter-war years, particularly during the 1930s. Unfortunately, they are wrong – very wrong! Why? Because they have misinterpreted the history – if they’ve bothered to check it at all!

    If you want to know more, just ask me. OK?

  • Helen Dudden 23rd Mar '13 - 8:49am

    I understand that the subject of owning more than one home could get some help too. I think that the lifting of planning will make some unwanted changes, but the Conservatives are of course aware of their to get a majority for the next election.

    Of course they will wish to form a government of their own.

  • Helen Dudden 26th Mar '13 - 7:15am

    Don, you have three petitions going in your area of Bath, these do not want building to happen.

    I suggest you get on your bike and promote your Ministerial position. Councillors, two of them are yours , encouraging the need to stop any form of house building.

    Come on Don, if we are to use the Georgian stock and they are cold, very cold, mine is at hypothermia levels, no insulation, damp and with no cavity walls. These houses can in turn produce an income to support the social housing sector. The energy supplier that I use even agrees, a better choice could be made for others to live. I am not the only one who is a social housing tenant and has bills that run into several hundreds of pounds,

    All talk so far, lets have some action! By the way freezing at present.

  • Helen Dudden 26th Mar '13 - 3:01pm

    Don on line with “this is Bath” some of your constituents and Councillors are not happy. It appears to be on the same subject, social housing.

    I know that you do not have any comments on housing, and I feel this is a problem. Do you feel that social housing should all be in one place at Riverside?

    Actually Don, I do feel that I have some respect for myself being a social housing tenant., I became a widow at a very young age, then continued to have serious health issues.

  • Helen Dudden 30th Mar '13 - 2:17pm

    Don, three cheers ,we are to have some housing. I know in a few weeks I am going to a meeting with Curo on the subject of what is planned for the future, I was there a couple of months age, on the subject.

    I welcome the plans for all the building that is being outlined at present, it can help the economy and as we all know Bath is a very expensive place to buy. It would of course be most positive if we can resolve all the differences and get positive actions in place.

    I like social housing and social issues as you know, family law is a nice place to be.

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