The extra £10 billion that the British Government is putting into its flagship Help to Buy scheme will to nothing to increase the supply of housing, it is claimed.
Indeed the extra money could increase demand and so exacerbate the current housing crisis, according to an analysis from the independent think tank the Adam Smith Institute.
The Government announced that the new funding for the Help to Buy Equity Loan could help around 135,000 more people to buy homes by 2021. This would bring the total number of households across England that would be supported through the scheme since it began in 2013 to around 360,000.
It also pointed out that some 81% of home purchases using the equity loan scheme have been made by first time buyers, helping the total number of first time buyers to increase by 70% between 2010 and 2016.
‘The new funding expands the Government’s commitment to help people make their dream of owning a home a reality. The Chancellor has been clear that support for buyers must be matched with support for building so that, over the longer term, housing becomes more affordable,’ said a statement from the Department of Communities and Local Government.
‘This means land must be made available in the right places to build the homes we need. The Government will therefore consult at Budget on an ambitious package of planning reforms, building on the Housing White Paper,’ it added.
However, Sam Bowman, executive director of the Adam Smith Institute, decried the decision to put more money into Help to Buy. ‘Reviving Help to Buy is like throwing petrol onto a bonfire. The property market is totally dysfunctional because supply is so tightly constrained by planning rules, and adding more demand without improving the supply of houses is just going to raise house prices and make homes more unaffordable for people who don’t qualify for the Help to Buy subsidy,’ he said.
He pointed out that London has the second highest property prices per square metre in the world, only behind Monaco. New build houses are even smaller in the UK than in the Netherlands, despite being the most densely populated country in Europe. ‘Only 2% of England is built on, but we’re fenced in by NIMBYs and planning laws that block development nearly anywhere,’ he explained.
‘To improve the housing market you need to change the rules of the game, so that damaged parts of the green belt can be built on, so we can have more dense and efficient development of existing urban areas, and so that locals benefit from new developments near them. Reviving Help to Buy is an astonishingly ill-judged move that may prove economically and politically disastrous for the Government,’ he added.
However, there is support for the move. Craig Hall, new build manager of the Legal & General Mortgage Club, said that Help to Buy has a fundamental role, particularly in helping first time buyers onto the housing ladder, with an estimated 228,000 people using the scheme and a 52% increase in net supply.
‘It is interesting to note that the Government has specified this funding is largely aimed at first time buyers, this could be an early sign of intent for potential changes to the scheme,’ he pointed out.
‘Although this funding will be reassuring for developers and lenders, we are still to receive the full detail on the funding and eligibility which is crucial for long term planning. With further announcements likely to be made at the Budget, this is good early indication from the Government of their intent to help thousands more to secure the chance of home ownership,’ he added.