The past few weeks have seen the financial world on tenterhooks – the Euro may or may not survive, further rounds of quantitative easing are being considered, the price of gold has gone haywire, and the stock markets are just going round in circles.
All the while, the housing market has been pootling along – somewhat undecided if it is up or down and unsure whether demand is actually on the up or not. New mortgage products have been issued and many withdrawn – on the whole it seems the financial world is stuck in a void with no direction.
Despite the lack of direction and decision in the markets, one thing that can always be relied upon for creating discussion is announcements from the Government on their plans for the housing market.
This week it’s a whopper – the revival of the Right to Buy scheme.
Right to Buy was first launched under the Thatcher-led Tory Government in the 80’s – basically if you had a council house that you had lived in for a few years, the scheme allowed you to buy it from the Government at a discount. The discounts were pretty good at the time, the scheme meant a lot of people could get onto the housing ladder easily and the Government raised a lot of cash for things like funding the police force against the miners, rubik cubes, shoulder pads and bad hair-do’s. At the time there was heavy criticism of the money not being put back into social housing.
The Tory Party has decided that it’s time to wheel the Right to Buy scheme out once again, offering several reasons as to how it will boost the housing market. On closer inspection and grilling by the press however, few of the reasons given actually stack up at all.
The plan for all intents and purposes is pretty simple: flog off council houses at a discount to create more home-owners – to boost housing market moral and get more “home-owners” on the books. This, in turn will stimulate some lending here and there – hopefully the discounts will be big enough to offset further house price falls.
All seems dandy up to this point – but what are they going to do with the cash?
The money raised from the sell-off will be used to build more social housing. Hmm – so how is that going to work? Surely selling something you have at a discount and then using the money to create the same thing but just a brand new one is never going to work?
Whilst I must admit, building a new house is probably cheaper than buying an existing one at the moment, you still have to take into account the cost of land, planning and of course time. Council houses themselves are not known for being the highest value units on any street, many of which were built decades ago and have not increased in value at anywhere near the same rate as private houses. The changes in building regulations and health and safety will also mean the construction costs will be far higher proportionally than they used to be.
With the exception of antiques (which I doubt is a category that very many council houses fall into) rarely does this kind of plan work unless you are money laundering.
The other point that appears to have been conveniently omitted for the re-launch of RTB is mortgages. Whilst there might be a few council house tenants sat on a bunch of cash ready to snap up a bargain, the majority will still need a mortgage of some sort. Given that part of the reason social housing exists in the first place is to specifically help out those who cannot afford large deposits or hefty mortgage payments – how likely are any of them to qualify for a mortgage in the current climate? Let alone when interest rates start going up?
Of course who am I to question such an idea? Housing Minister Grant Shapps has piped up saying that “one new affordable home would be built for every home sold off”. He has, unfortunately been unable to state quite exactly how he intends to do that, but seems adamant that this cunning plan will work again and again, with visions of repeating the process further down the line.
If this idea were as workable as Mr Shapps believes it is – why is it that no-one in the property world has thought that this might work across the board? Surely if you can take any property, sell it at a 30% discount and build a brand new property with the cash, we would all be billionaires by the end of the week!
There are of course several elements to this that we might be missing:
- Grant Shapps has a stash of building materials in his back garden after over-ordering for an extension.
- Someone in the government has a friend who’s a builder and a bit low on work.
- The Government is going to use some land it “found” somewhere that is not in use at the moment and hope no-one notices (like an old airfield, landfill, millennium dome, greenbelt land etc.)
- The “new” social housing will be in the form of caravans or mobile homes.
Sadly, as much as the idea sounds great if you only look at the initial idea itself, in practice it’s what would appear to be yet another half-baked attempt to stimulate the housing market without actually doing anything about it.
The only way realistically for this to work is to combine the idea with that of a suggestion by the Halifax and the Telegraph in one of their mortgage advertorials – sell all the council houses in London and move everyone to Yorkshire.
The bottom line is that taxation, mates’ mortgages, house boats and flogging council houses are all just ideas to keep the media busy – even collectively they will not bring the housing market back to an amenable level for the majority of the public.
Until the powers that be finally understand why house prices are as high as they are, why the market is as stagnant as it is now – there is no point in the Government putting forward ideas that it can’t show at least some element of having been thought through and subsequently just make them look ridiculous time and time again. The lesson here for the politicians really has to be “regardless of what you think or say, it doesn’t mean it will – whether you are in power or not”.