Over the past couple of weeks, we’ve picked over what we know about Labour’s offer on housing. It has been an exercise in disappointment.
Whilst this was one area the Opposition really could have gone big, Sir Keir Starmer’s programme seems to be little more than smoke-and-mirrors: a new quango that won’t force councils to build new towns, a new ‘grey belt’ that will be very onerous to build on, and a promise to ‘build beautiful’ illustrated by pretty pictures of illegal housing.
But it’s manifesto day, so today is the day we get the Conservatives’ big offer on housing. Sir Keir and Angela Rayner have set the bar much lower than they might – have the Tories managed to overleap it?
Of course they haven’t. Even in a manifesto where the Prime Minister is promising £13bn of tax cuts, there doesn’t seem to have been room to offer new housing. The entire thing is an exercise in moving existing stock around and pumping credit into a shortage.
Right, we’re getting ahead of ourselves. What’s actually in it? According to media reports this morning, there are a few strands:
Writing in this morning’s Daily Telegraph, Rishi Sunak posits that: “The choice for voters at this election is clear – a thought-through plan to help a new generation to get on the property ladder or Labour, who has no plan, no courage or convictions, and would take us back to square one.” Let’s see.
Index-linking the Right to Buy discount
“We will also ensure the Right to Buy discounts rise with inflation. Mrs Thatcher’s original Right to Buy scheme was an engine of social mobility but the Labour Party still haven’t come to terms with it.” ~ Rishi Sunak
This is the best of the bunch, in that it is a straightforwardly good idea. The housing crisis has got so acute in places such as London that the whole Right to Buy dynamic has stalled, because prices are so high that tenants can’t afford their residences even with the discount.
But it is far too timid. There is another, much more important update to this policy which has been waiting for years for ministers to pick it up, and would do much more both to expand home ownership and deliver a more efficient distribution of our limited housing stock.
Flexible Right to Buy, proposed by the Adam Smith Institute, would allow tenants to redeem their RtB discount for the purchase of another property, with the money made up via the sale of their original home (which will often today be worth several times the discount). It’s as close to a win/win policy as one usually gets; per the ASI’s report:
““A conservative estimate of the impact would see 21,000 tenants take advantage of the scheme with £2 billion of discounts on £9 billion of stock and net receipts of £7 billion.””
People who wanted to upsize, or move out of London, would no longer be trapped in whatever council or social property they managed to get, whilst fabulously valuable urban real estate would be freed up for resale or redevelopment, all whilst being non-coercive and turning a profit. That was the Right to Buy reform we really needed.
Scrapping capital gains tax for landlords who sell to their tenants
“Thirdly, we will introduce a tax relief for landlords who sell to their existing tenants. This will incentivise landlords to give tenants a chance to own the home they live in with a 100 per cent relief on their Capital Gains Tax liability. It is good for landlords and transformational for tenants.” ~ Rishi Sunak
This, on the other hand, looks like an attempt to sort-of create a voluntary version of the Right to Buy dynamic in the private housing sector. With landlords pulling out anyway after years of policy crackdowns, why not give them an incentive to sell to their tenants?
I don’t know, off the top of my head, what percentage of people are renting a property of the sort they could hope to buy outright without the sort of discount that made Right to Buy work. But the bigger problem with this is that it will only exacerbate the current squeeze on the private tended sector, and that squeeze is already making people homeless.
Simply put, private rented is the highest-density mode of occupation, because of the growth of Houses of Multiple Occupation (HMOs) which see three, four, five or more tenants renting rooms in what might otherwise be a family home. Selling a four-person HMO to an owner-occupier couple decants two people into a tight rental market with two fewer beds in it.
To the extent this policy works, it will do so by creating a handful of winners at the expense of deepening the rent crisis for everyone else.
Abolishing stamp duty for first-time buyers (sort of)
“We Conservatives believe in tax cuts, so we will abolish Stamp Duty up to the value of £425,000 for first-time buyers, making the temporary rise in the threshold permanent and giving thousands more home-buyers tax relief.” ~ Rishi Sunak
Lower stamp duty as a first-time buyer is nice. However, it is worth noting that the main thing which happened during the full stamp duty holiday that Sunak instituted as Chancellor was that prices went up, because sellers knew that buyers suddenly had more cash to hand.
Moreover, the Party still appears committed to kneecapping its policies by setting arbitrary maxima on the value of properties they apply to. This has already turned the Lifetime ISA into a toxic savings trap for hundreds of thousands of young people, and it will hobble this.
In London and increasingly large parts of the South East, £425,000 is far less than a first-time buyer couple will spend on a family home. If the Prime Minister is so worried about a bad write-up from the Resolution Foundation that he must have his limits, he should at least make them per-person and allow two people buying together to pool them (and for the LISA too). A simple, pro-family tweak – apparently beyond the Party at present.
Meanwhile, no sign of a stamp duty exemption for people looking to downsize, another obvious move to free up under-occupied property and help older people move into housing that better suits their needs.
A revived ‘Help to Buy’ scheme for government-backed mortgages
“With our new scheme, we will provide an equity loan of up to 20 per cent towards the cost of a new build home. We will also give first-time buyers a five per cent deposit on terms they can afford.” ~ Rishi Sunak
What is there even to say about this that we haven’t said already. Last year, I wrote a piece headlined ‘As a means of easing the housing crisis, reviving Help to Buy would be insane’, and I stand by it:
“Too often policy seems to conceive of the struggle as some sort of wrestling match between buyers and the market, and that powering up buyers with more money will balance the scales. In fact, it just exacerbates the problem. If you funnel more money into a market that isn’t expanding, prices will just equalise upwards. More money divided by the same number of homes equals higher prices.
“Such interventions might, at first, help a certain number of people get on the housing ladder, if they’re in a position to complete that first-time purchase before the ever-rising waterline of the market catches up with them. But even then, those individuals are left grappling with longer mortgage terms and higher repayments, an economic drag that will likely last their entire life.”
Pumping more credit into a supply shortage pushes prices up. This makes homeowners feel good but doesn’t actually benefit anyone except those who cash out of the housing ladder (because if they move, their next home is also more expensive). You don’t need to take my word for it, either.
Oh and of course, the reason that developers will be co-financing these mortgage guarantees is that, just like original Help to Buy, the loan will only be advanced “towards a new-build property”. Wouldn’t want to accidentally push up the prices of the nice historic stock that already commands a market premium; better to use state finance to create a captive market for developers!
To the extent this policy works, it will do so by creating a handful of winners at the expense of deepening the mortgage affordability crisis for everyone else. Am I detecting a theme?