Missing out

Yesterday’s Budget was all about missed opportunities - what was not in it rather than what was.

The spin ahead of time was all about a £1 billion package for housing with what seemed even at the time like exaggerated claims that it would lead to ‘thousands of new council houses’.

That just about came to pass provided you substitute hundreds for thousands. It’s hard to see that a three-month extension to the stamp duty holiday will do to stimulate the housing market. The £600m to kickstart new housing,  £100m for council housing and £80m extra for HomeBuy Direct - it’s not clear whether this is new money or if it is just spending brought forward -  looks just as puny as the succession of small packages announced last year. Housing starts will still slump to around 70,000 and the 3m homes target looks further away than ever. 

So what was not in the Budget that could have been?

Missed opportunity one is as much about what did not happen last year as yesterday. For a fraction of what it has poured into the coffers of the banks, the government could have committed billions in extra investment into housing. 

As the National Housing Federation points out, £6.35bn could have delivered 100,000 new social homes over two years. But the government could have gone even further and invested in tens of thousands of homes to rent now and sell later when the market improves, stimulating construction and jobs now and maybe even making a profit in the longer term.

Measures like HomeBuy Direct will do something to help housebuilders and help to create an intermediate market but not much to support housebuilding. Just like car dealers with the £2,000 scrapage offer, what’s to stop housebuilders using it to reduce the discounts that they were already offering?

Missed opportunity two was to back that up with measures to encourage more institutional investment in homes. As the British Property Federation points out, it did not even take steps on REITS and stamp duty that would have cost relatively little yet stimulated investment.

Missed opportunity three was to seize the moment and tackle our national obsession with home ownership - something that is only politically possible during a housing market crash. 

Measures could have been taken to guard against the next boom and bust. Housing is undertaxed compared to other forms of investment and that encourages speculation. The government could have looked at the proposal by Compass for a land tax. It could have looked at the tax subsidies given to buy to let landlords. It could have looked at the exemption from capital gains tax of main residences - still worth £5.3bn in 2008/09 with house prices falling at their fastest ever rate but worth £14.5bn in 2007/08.

Lenders got what they wanted with the introduction of a scheme to guarantee mortgage-backed securities. But is kickstarting the sort of securitisation that led to the crash in the first place really a good idea? And should the government be subsidising home ownership at all? That question is being asked not just by left-wing pressure groups but by The Economist too. 

Missed opportunity four was VAT. Cutting it to 5% on all housing refurbishment work might cost up to £2bn - restricting the cut to empty homes would cost much less. Now cleared by the EU, it would create jobs, it would be better for the environment and it would create thousands of new homes. In contrast new homes are zero-rated for VAT - a concession that cost £5.6bn last year. 

What we got instead was business as usual. Extra investment here, support for homeowners there, with no attempt to use the crisis as a chance to recast our failed housing system. And the clock is ticking on the massive squeeze in investment that seems certain to follow the next election.