Left-wing ‘blame-thinking’ could make new home sales harder
If the Conservative government collapses and a Corbyn-led Labour party is voted into power, property developers may be forced to work under a new regime in which the Bank of England targets zero house price inflation. At least, this is the hope of a left-wing think tank, the Institute for Public Policy Research (IPPR).
IPPR started pushing for affordable housing reform in November 2017
In November 2017, the IPPR published a report titled “Priced Out? Affordable Housing in England”. In that document, it noted that only 71% of England’s demand for new homes was being satisfied by new builds by property developers.
It clearly laid the blame for the housing crisis on developers when it said “While other factors, such as money supply, play their part, this is impacting on the affordability of housing. House prices have risen by 76 per cent since 1995, far outstripping inflation (ONS 2017).”
While it noted that the product range to make housing more affordable has increased in recent years (e.g. models for rent, ownership and intermediate housing), it made a number of recommendations to increase affordable housing, including:
- A minimum of 35% of all residential developments be allocated to affordable housing
- A minimum of 50% of all residential developments be allocated to affordable housing, where the development is on public land
- Housing companies to be formed by mayors
- Local authority pension funds to be combined with local authority funds to invest in affordable housing projects
- Compulsory purchase orders to enable the buying of land at lower values (presumably to enable the housing companies formed by mayors to build using the local authority and local authority pension funds monies)
Now the IPPR want zero house price inflation
The IPPR has not let the dust settle on this report. Not content with recommending the above measures – which may mean that private property developers would get the worst land at the highest prices, and still have to provide 35% to 50% of development as affordable housing – it has now suggested the Bank of England should step in and target zero price inflation over the next five years to increase housing affordability.
In its latest discussion paper, “On Borrowed Time: Finance and the UK’s current account deficit”, the IPPR suggests that the Bank of England take measures such as:
- Insisting on higher deposits
- Placing stricter ceilings on loan-to-income ratios
Oh, it also suggests boosting house building.
Zero house price inflation means a fall in real terms
If house price inflation is held at zero, prices would drop by around 10% in real terms, after accounting for wage inflation – assuming wages continue to grow at their current rate. Thus, housing would become more affordable.
Serious questions avoided
The IPPR appears to believe it can wave a magic wand at the housing market. By placing more stringent monetary measures on buyers, it believes that demand will fall. It may very well do.
It also believes that it can somehow increase the number of homes built, in an environment where housebuilders:
- must provide up to 50% affordable homes
- face competition for the best land from authority-subsidised bodies with access to the best land at knock-down prices
- will suffer from house prices that are falling in real terms
The IPPR also doesn’t address what happens after the five years:
- Should the Bank of England leash be loosened?
- And if it is, what effect does the IPPR believe the pent-up demand for homes – caused by its policies in the first place – will have on property prices as new buyers flood the market with higher deposits saved?
- And will these new buyers opt to live in local authority-built properties built for affordability, or private-built properties developed to the highest standards?
It’s a crackpot policy. Maybe it should be described as infantile economics. But could it become government policy? Perhaps only Jeremy Corbyn and Labour can tell us that, but I doubt they would wish to divulge their plans.
In the meantime, property developers would be wise to prepare for a tougher sales environment should the UK electorate lean left in the near future. Contact Castlereach to discover how we can help you to do so.
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