Posted by: Jules Birch15/11/2011
When an organisation as influential as the CBI calls for radical action to tackle the housing crisis it should be time to welcome a powerful new ally to the cause. I’m not so sure this time.
In a report published on Friday, the employers’ organisation said that ‘the government and businesses must adopt a two-pronged approach to deliver both short and long-term solutions to the housing crisis’.
In the short term it calls for measures to help first-time buyers by allowing them to access savings locked up in their pensions for a deposit and introducing introduce a mortgage indemnity guarantee (MIG) insurance scheme.
In the longer term it calls for a reduction in ‘regulatory drag’ on housebuilders and a pro-growth planning system to support the construction of new homes.
CBI director-general John Cridland said: ‘In the short-term, boosting activity in the housing market and construction sector could be a major game-changer for growth. Housing makes a significant direct contribution to economic output and job creation, and also has a big impact on business and consumer confidence and spending.
‘Despite five million people languishing on waiting lists because of the housing shortage, house building is at its lowest peacetime level for 90 years. A quarter of a million new homes are needed each year for at least the next twenty years to make up the shortfall.’
That had me turning eagerly to the full report to see what the bosses had in store. What I found instead was something that completely missed the point and, if the CBI has had the influence I suspect, makes me doubt just how much difference the growth and housing strategies due in the next two weeks will really make.
The document is almost entirely focussed on the housing market. Private renting gets one mention with a call for encouragement for institutional investment.
Affordable rent is welcomed as an improvement on social renting (‘a drag on our labour market flexibility’) with some concern expressed about the funding structure beyond the current spending review. And, apart from a call for more tenants to get the chance to buy, that’s it.
The rest of the report is devoted to the shrinking tenure of home ownership, with calls to free up the mortgage market and deregulate the development environment for housebuilders.
The CBI says first-time buyers should get more help and that the government should be prepared to back mortgage indemnity guarantee insurance if lenders, insurers and housebuilders cannot find commercial solutions. This would enable buyers to get more mortgages at up to 95 per cent loan to value rather than the current average of more like 80 per cent.
Meanwhile, first-time buyers should also be able to use up to 25 per cent of their pension pots as a loan to themselves to pay for a deposit.
Both measures would help some people get on to the housing ladder - but at what cost? Despite dutiful mentions of the need to avoid a repeat of the lending excesses pre-2007, the combined effect will surely be to make house prices even more unaffordable and increase personal indebtedness (a report by HSBC yesterday estimated that 360,000 people who bought in 2007 now cannot afford to move).
Unless of course there is a massive expansion in new supply to bring down prices (and rents) in the longer term. The CBI supports government action to ensure the planning system is pro-growth, release public sector land and allow more ‘build now, pay later’ schemes. It calls for reform of stamp duty and a block on any new financial regulations that will restrict the supply of mortgage funding.
But the CBI also wants a block on a drive to ‘reduce the regulatory burden on housebuilding’. It says the government has made a start in reducing regulation at the national level but that ‘the approach to deregulation looks to be even more fragmented and far less effective when considering local red tape, which must be addressed with equal resolve’.
Prominent on the list of those local demands are, of course, community infrastructure and affordable housing. There is an argument to be had about whether it is better for development to go ahead without an affordable element if the alternative is no development but it’s not at all clear how this will help the ‘five million people languishing on waiting lists’ in whose name the CBI calls for action.
And where are the guarantees that reduced regulation will actually lead to more housebuilding as opposed to the increased margins which all of the major housebuilders say are their priority?
All in all, this is a plan that seems likely to make housing more unaffordable and could even reduce the supply of affordable homes without any guarantee of the major increase in new supply that is so desperately needed.
From Inside edge
Housing commentator Jules Birch puts the latest news in context