Building for the futurePrint publication
A significant social issue of recent times is the lack of housing in the UK, and particularly the fact that we’re building an insufficient number of new homes to meet the needs of the growing population. Estimates suggest that 200,000 to 250,000 houses need to be built each year in order to match population growth. However, in 2012, only 117,000 new-builds were completed. This short supply of homes has become a major social issue as the lack of supply when compared to increased demand serves to push up the costs of buying and renting. This has a significant impact on living standards as larger proportions of incomes are then being spent on rent or mortgages.
To deal with the issue, the Government launched a number of schemes in the past few years which aim to increase the number of new-builds. The focus can generally be divided between plans to give finance for house building projects and plans to help buyers who can’t afford a deposit on a new home.
The two main initiatives which help buyers who can’t afford a large deposit are ‘Help to Buy’ and the ‘NewBuy Guarantee’. Help to Buy equity loans are available to purchasers of new-build homes worth up to £600,000. Under this scheme, the Government loans property purchasers up to 20 per cent of the cost of a new-build home, so that they only need a five per cent deposit and a mortgage to make up the remainder. £3.5 billion has been set aside to help up to 74,000 home purchases, and the scheme will end either when the funds are used up or at the end of March 2016.
Under the NewBuy Guarantee, buyers who have a deposit of at least five per cent can secure a 95 per cent mortgage from participating house builders. So far, over 70 house builders and six lenders have signed up to the NewBuy Guarantee.
Additional funds have been set up to encourage development on house building projects. The ‘Get Britain Building’ fund is a £570 million investment fund available for developers to make progress on development sites that haven’t started or on are hold. The aim is for the fund to enable homebuilders in possession of stalled sites to build up to 16,000 new homes by de-risking projects.
There are also additional grants available for developments fitting into certain criteria. For example, grants are available if house builders are making homes to be rented out, affordable homes, or for large-scale housing projects.
Other measures which have been launched include a financial reward for a council that increases the number of homes in their districts. New rules being proposed also mean that if councils are taking too long to reach a decision as to whether to grant planning permission, house builders planning large developments can appeal directly to a minister for approval.
Finally, the ‘Funding for Lending’ scheme, although not directly aimed at house builders will hopefully serve to stimulate lending. This scheme gives banks access to cheaper funds on the requirement that they improve their own lending. Unfortunately, however, from this month on, Funding for Lending can no longer be used for mortgage lending, as there was a fear it would lead to a housing bubble.
As to the effectiveness of these schemes, the results have been promising. The number of new residential planning approvals last summer increased by almost 50 per cent compared to the previous year. In addition, housing construction activity is now at the fastest pace for almost a decade.
Most market commentators have attributed this rise to the schemes aimed at boosting mortgage approvals. Funding for Lending was a big part of that, and Help to Buy has also been seen as successful (for example, Help to Buy accounted for just under a third of Barratt’s completions last year). The rise has also been attributed to the encouragement of local authorities to release undeveloped land.
However, it should be noted that the increased activity in house building is skewed in favour of London and the South East, and the proportion of homes being built there has increased by 10 per cent from the position fifteen years ago. Despite the initiatives in place the levels of house building still are a fair way off the numbers seen during the peak of activity and in Yorkshire, the level of house building is still more than 50 per cent lower than levels seen prior to the recession.
There is also a fear, voiced amongst some commentators, that such incentives are leading to first-time buyers over-stretching themselves and an acceleration in an already rapidly rising market within London. Furthermore, there is concern that such schemes are only serving to increase the already evident north-south divide in the housing market.
As to the future, the industry is generally anticipating a rise in house building, and national house builders have been purchasing land at the fastest rate since before the recession. Whilst the increases seen so far are still not significant enough to address the housing problem, the effects are heading in the right direction. The house building issue was a key point at the Labour Party conference in 2013, and as a key political topic it is likely that there will be further new initiatives to come, which hopefully will continue to address this ongoing and hugely important issue.