This week the government will unveil a package to support the UK housing market. One year on from the beginning of the credit crunch, support for struggling families will be welcome. And by focussing on the issues most hurting voters we can restore our reputation for fairness and competence. The package should include help for those at risk of repossession, support for first-time buyers and an increase in the supply of social and affordable homes.
Repossessions are at double the rate they were a year ago, with 19,000 people losing their homes in the first half of 2008. Repossessions are devastating for the families affected, can damage fragile communities and will exacerbate falling house prices. The government has already responded with £9m more for debt advice and extending free legal advice. Now though, the rules for when homes can be repossessed must be updated. New rules should ensure that courts allow repossessions only when the lender has looked at all options. The Financial Services Authority should enforce the framework and regulate sale and leaseback schemes.
Rules on housing benefit also need reforming. Homeowners have no access to housing benefit and can only claim income support for mortgage interest payments 39 weeks after getting into difficulty. Although this rule works if you can sell your home and walk away with some capital, market realities have changed with falling house prices wiping out any profit from selling, in many cases even if homeowners can find a buyer. So, more homeowners will be at risk repossession if they find themselves out of work. And, as I found out on the doorstep recently, those in shared-ownership schemes (one of Labour’s flagship policies) are in the most confusing situation, having to claim housing benefit and income support if they get in to trouble. The anomalies of housing benefit should be changed to help people stay in their homes whether they rent, own or part-own. A scheme to give access to shared equity schemes to homeowners who want to sell part of their home to a housing association would also help.
A second theme in the housing package should be to support first-time buyers. In the last 12 months banks have swung from being willing to lend excessively to being overly cautious and first-time buyers with good prospects who could afford their monthly repayments are unable to get mortgages. Despite a 10 per cent fall in house prices, deposits expected by banks have doubled to more than £30,000. The disappearance of FTBs is exacerbating the decline in house prices – bad for families wanting to own their own home, bad for the economy, and ultimately bad for the banks too. For the housing market to recover, new buyers need to be convinced that house prices are close to their trough and have access to mortgage deals. The government has provided a lifeline to the banks through lending arrangements whereby banks swap mortgage securities for government bonds at the Bank of England. In return for this funding, banks must support those at risk of repossession and stop putting unnecessary barriers in the way of first-time buyers.
The Tories want to wait for the housing market to find its equilibrium. But, such faith in markets is naïve and neglects the fact that many families will suffer through this adjustment process. The housing market overshot in the upturn and is likely to undershoot on the downside too. Government pressure on banks to offer mortgages to those who can afford it, a further extension of the shared ownership scheme, where individuals and government share the risks in the housing market, and an extension of the £200m scheme to buy unsold properties will support the housing market and Labour’s ambition of homeownership for the many.
Aspirational, hard-working families are a key group the Tories are trying to cultivate to win the next election – but Cameron’s refusal to contemplate support for the housing market puts them at odds with what families and the economy need. Policies to help people buy their own homes and to stay in them, are vote-winning – especially in the south-east where average house prices are still eight times earnings.
Current weakness in the housing market also reminds us that homeownership is not always the best option, especially for those on low incomes and in insecure employment. So it is important to have a strong socially rented sector too. The government recognises this and has pledged three million more homes by 2020 with a target of 45,000 new social rented houses a year in England by 2011.
Caroline Flint’s announcement in July of £200m to purchase unsold housing stock for social or affordable housing is one exciting, innovative policy to meet the social housing target. Where such housing meets local needs it will help address the chronic housing shortage in many of our communities, and it is also an effective way of supporting the overall housing market by increasing demand. But £200m will pay for only about 1,500 homes and should be increased to make a greater contribution to our vision of a decent home for every family.
But the biggest contribution to additional capacity in the socially rented sector will be house building. There is certainly capacity in the construction sector, but given the weak financial position of many firms, purely private sector schemes are unlikely to be viable. The 2007 housing green paper made an important contribution to increase social housing with incentives to encourage housing associations and council-backed ALMOs to borrow to build new homes. But this framework was drawn up more than a year ago, and housing market conditions and the problems in the industry have intensified since then. The process now needs to be streamlined with funding and incentives increased. Announcements on this will be keenly awaited.
The Tories say nothing of substance on how they would address these challenges. Their pledge to raise the stamp duty threshold to £250,000 is a regressive step, and when John Major introduced a similar policy it did little to help the housing market. If the Tories want to be seen as the next government they must set out their prescription for economic revival. The fact that they can’t epitomises everything Cameron’s Conservative party is – good on the rhetoric, silent on substance.
Free markets create economic dynamism, which has the potential to benefit the whole of society. But without appropriate regulation capitalism can spiral out of control. Progressives understand this and recognise the role of the state in providing mutual insurance to protect families from the worst excesses of the market. By contrast, the Tories remain wedded to a philosophy which stresses cutting taxes and leaving families to fend for themselves. A joined-up and ambitious housing strategy will provide a new sense of purpose for Labour’s third term and will demonstrate that we, not the Tories, have the ideas to meet our future challenges.