I’m confused. I think we’re all a little confused, really, well, everyone except the developers. The developers know exactly what they want and they’re not above spreading a little confusion to get it.
The catch 22 of the housing situation in England goes a little like this:
- There aren’t enough houses, so prices are high.
- Mortgages are harder to get hold of than they used to be, so first-time buyers are few and far between.
- Developers are unwilling to build because (thanks to 2) there’s no one out there buying the houses they do build. Which means that the supply/demand imbalance gets worse rather than better.
I’ve ignored other issues like where precisely the developers are supposed to be building. I know these are hardly peripheral issues; when a brand new housing development is proposed right in the middle of a town already suffering from lack of school places or doctors and congestion and poor infrastructure generally, it’s a massive issue; when you can’t find anywhere to live within an hour of where you work because the people who already live there are dead set against anyone else moving in on their idyll, it’s a massive issue too.
In the latest budget a number of measures were proposed which will have had the developers rubbing their hands together in glee. If taxpayers chip in for the deposits of first-time buyers, then BANG! mortgages will be easier to get hold of. BANG! say the developers – we’ll build more houses. And BANG! the supply/demand imbalance will be corrected, and unaffordable houses prices will no longer hold back the market.
The logic is seductive, but it conceals some rather glaring flaws. And demonstrates a touching faith in the housebuilding industry that history doesn’t entirely warrant.
Look at it this way. House prices are already too high for most first-time buyers, right? And that’s despite the fact that they’ve fallen 20% in the last few years. And the government’s new mortgage guarantee scheme will suddenly open the market up to more first-time buyers. Increasing the demand. Even if the builders all got to work right now with every man they had, it would take years for them to meet the demand this new scheme has created.
Result: house prices go up, not down. Developers do increase their out-turn, but not by enough to stop this artificial inflation in its tracks. Why would they?
Of course, the developers will say, this isn’t going to happen. Demand will increase slowly, building will keep pace. Prices will fall.
Will they? Well that’s not ideal. The taxpayer’s behind this mortgage guarantee, remember. Falling house prices will just add to the never-shrinking deficit.
There is a third possibility, that supply and demand magically keep pace, because the impetus provided by the mortgage guarantee matches the impetus provided by the new housebuilding projects. A tricky challenge. And that’s without factoring in the planning elephant in the room: convincing arguments have been made that poor zoning practice did almost as much as poor banking to create and then burst the US housing bubble we’re all still reeling from. Planning isn’t just a homeless-v-NIMBY debate; it’s macroeconomic, too.
Balancing these two ends of the equation would be a tremendous feat, an act of skill and judgement that would call for the finest minds in the country; brave, yet prudent; nimble, yet with an eye on the long-term; creative, yet diligent.
How lucky we are that the Treasury, the developers and the banks fit the bill so well, right?
If you liked this, take a look at some extracts from my soon-to-be-published novel Without Due Care here.