About time

Sellafield. Parental help. Mortgages lasting 40 years. Welcome to housing affordability in the 21st century.

Exhibit one is a survey by the TUC comparing median house prices and earnings in local authority areas across England. It finds that Copeland in Cumbria, home of the Sellafield nuclear reprocessing facility, is the only one that is easily affordable on less than three times earnings. Nowhere in southern England is affordable at less than five times earnings.

Exhibit two is an opinion poll of parents conducted by the National Housing Federation. It finds that 81 per cent of parents are worried about the impact of rising house prices on the next generation, 69 per cent think their children will not be able to buy without their financial support and 25 per cent are already saving for their children’s first home.

Exhibit three is a report in the Independent on Sunday that more first-time buyers are being tempted by mortgages lasting 35 and even 40 years. The good news is that they offer lower monthly repayments than a traditional 25-year mortgage. The bad is that you will pay back far more in total (£403,000 for a £200,000 mortgage over 40 years) and could end up still in debt in retirement.

On one level, these trends are nothing new. The TUC comparison offers a useful affordability yardstick but it is really a false comparison since for many years most people have bought their first home as a couple who are both working. Help from the Bank of Mum and has been around for a while as a result of rising prices and the need for a much higher deposit since 2007. And plenty of owners have mortgaged themselves beyond 65.

All three, like longer mortgage terms and chopping up houses into rabbit-hutch rentals, can be seen as the market reacting to higher prices and finding a way for people to afford them.

However, the ways the market finds will not necessarily be benign: just think of what happened when the banks relaxed their lending criteria before 2007 and packaged up low and high risk loans into securities to sell to each other.

What the TUC survey shows is the impact not just of rising prices but also of earnings that have been stagnant since the start of the financial crisis. That, plus new Mortgage Market Review criteria that mean lenders are (rightly) checking affordability much more carefully, mean it will be even more difficult for average earners to buy. And it has wider economic effects too since those forced to rent and those who manage to scrape enough together to buy will have less to spend on other things.

And what about the long-term implications of the parental help suggested by the NHF poll? Through most of the 20^th century rising home ownership was an engine for greater equality of wealth. That has already gone into reverse and it becoming an engine for greater inequality in the 21^st century, with ownership increasingly become the preserve of those with family already on the ladder.

There are wider social impacts too. There is already a house price premium in the catchment areas of the best state secondary schools and a report from the Social Mobility and Child Poverty Commission last week showed the extent of Elitist Britain, with top jobs reserved for those who’ve been to public schools and top universities.

The NHF quotes Joseph Rowntree Foundation research from 2012 into housing options for young people in 2020. It forecast that the number of owners aged 18 to 30 would fall from 2.4 million to 1.3 million, with private renters rising from 2.4 million to 3.7 million and those living with their parents rising from 3.2 million to 3.7 million.

I’ve blogged many times before about the decline of home ownership. What looks like a slow death when you look at the headline numbers seems much faster when you look at the fall in the number of households buying with a mortgage and at ownership rates among different age groups. This has huge implications for future policy that we have not even begun to address.

We now have a housing crisis that expresses itself not just in homelessness and a desperate need for social housing but in an anxiety about affordability that stretches right up the income scale. As David Orr of the NHF puts it: ‘We need the government to take action to end the housing crisis within a generation, for the next generation.’

Yet 80 per cent of the parents in the NHF poll do not think that any of the mainstream parties will effectively deal with housing. Will they hear anything better in this year’s party conference season?

There is one piece of good news today. A manifesto launched today by the influential website Conservative Home website puts Homes, Jobs and Savings as its three priorities. The section on ‘Homes for All’ highlights many of the issues I’ve raised above. If the solution is to build more homes at lower prices, it’s interesting that ConHome argues that the problem is not so much planning as speculation:

‘To provide both affordability and quality, we need to freeze out the speculators. In an advanced society there is no such thing as a completely free market in land for development – central and local government will always be involved in its allocation through the planning system.
We believe that the state should use this power to actively favour home ownership over professional property investment.’

Here’s a flavour of the proposals:

• A new option for planning authorities to require that homes in a new development only be sold to people intending to live in them
• New tax policies to favour ownership (phasing out of stamp duty) over property investment (a tax on land banking)
• An end to all mortgage subsidies such as Help to Buy with government support switched to councils and social landlords to build new homes for sale
• A long-term switch of housing benefit money from the private rented sector to ‘ownership-enabling social housing’
• A community-led planning system with local referenda
• A right to build on suitable publicly owned land for self-builders and housing associations
• More development at the scale of a street or whole neighbourhood facilitated by enhanced land assembly powers for local authorities plus an auctioning system to allow landowners to sell purchase options on their land
• New garden city corporations modelled on the London Docklands Development Corporation – again subject to a local referendum but with powers over planning, land purchase and infrastructure.

You can agree or disagree with that. For me, the recognition of the importance of housing and the diagnosis that speculation rather than planning is the problem are both welcome but ‘homes for all’ do not seem to include ones for those locked out of any form of ownership.

However, what’s interesting is that the manifesto is covering much of the same territory as Labour’s Lyons Review. The policy prescriptions will be different (especially on social housing and housing benefit) but at least the major parties are taking the housing crisis seriously at last.

Before all of us have to move to Sellafield, it’s about time.