Shapps’s subprime stimulus is a bailout for housebuilders

Kevin Gulliver details the flawed concept and execution behind the government's new housing strategy, but welcomes the desire for stimulus which lies behind it.

Yesterday the coalition government launched its much delayed housing strategy purporting to ‘get Britain building again’. In fact, it is far from strategic and is effectively a list of policy rehashes, previously announced initiatives and last minute add-ons.

Even worse, it largely ignores the fundamental needs of the national housing system which centre upon under-supply of affordable housing over the long-term, an attachment to home ownership verging on the irrational, a dysfunctional planning framework, pervasive nimbyism and residualised social housing since 1979.

Yet ‘laying the foundations’ is interesting politically since it is the first sign that the government is spooked by the flatlining economy and the failure of public spending cuts to tackle the deficit and ‘re-balance’ the economy towards private sector investment and employment.

As anæmic economic growth erodes revenues to the exchequer and unemployment rises, the government clearly acknowledges the need, even if implicitly, to use house building as a means of injecting some investment capital into the economy.

That the prime minister and deputy prime minister launched the housing strategy and wrote its foreword, and that communities secretary Pickles was the main media spokesman, leaving housing minister Grant Shapps with a bit-part role, indicate that it is an attempt to demonstrate action in the face of dire economic statistics.

For those who champion housing investment this is a welcome recognition and helps housing climb up the political agenda. The housing strategy is pretty thin gruel though and sidesteps any attempt to tackle deep-seated housing problems that go back at least thirty years.

On the positive side, there are measures to boost house building including self-build (although how much of this housing will be ‘affordable’ is open to question) and to bring a relatively small number of empty homes back into use. On the negative side, it fails to learn the lessons so ably taught by the credit crunch and its continuing aftermath.

The housing strategy’s centrepiece is its proposal to introduce a mortgage indemnity scheme, under-written by the house building industry and ultimately the state, to enable first-time buyers to access 95 per cent mortgages. Coupled to more generous discounts to council tenants through the right-to-buy, previously announced at the Conservative Party conference, the government’s aim is to kick-start a floundering housing market through an influx of new buyers.

As some commentators have pointed out, much of this policy development stems from successful lobbying by the house building industry, which will be the main beneficiary.

Even the Daily Telegraph caricatures the indemnity scheme as a ‘Freddie Mac, Fannie Mae’ retread and a return to sub-prime lending. This is evidenced by how close 95 per cent mortgages are to negative equity at the moment; recent studies have shown that 360,000 households who bought homes since 2007 are now in negative equity.

What’s needed is a real housing strategy that recognises homeownership reached its zenith in the mid-noughties, that social housing needs to be revived and that the UK has under-performed as a house builder; both quantitatively and qualitatively.

The transfer of state subsidies away from bricks and mortar to rents in both the social and private sectors since the Housing Act 1988 has a lot to answer for.

Today’s housing benefit bill to the tax payer stands at more than £22 billion annually – twenty times higher than in 1979 – while public investment in social housing has halved over the same time frame and is now less than one quarter of rent subsidies. Only partial replacement of social homes sold through the right-to-buy has also contributed to an unbalanced housing system.

A return to publically funded housing investment would enable more homes to be built, see less public money going into the pockets of private landlords and financial institutions, which have lent £38 billion to support housing association development plans since 1988, ensure greater employability of tenants through a reduced poverty trap, and their increased mobility without relying on Grant Shapps’ preferred methods of mutual exchange or house boats.

The UK must also find ways of reducing the often pernicious effects of the home ownership market on the wider economy and as a generator of household debt.

There are ways of widening asset ownership, through community mutuals for instance, without coercing people into unsustainable home ownership. But this will need a government with the courage to promote new housing and ownership models against the backdrop of the British love affair with home ownership; in other words, not very likely.

See also:

Inflation is worse for the worst off – Alex Hern, November 6th 2011

Livingstone: Taking action on London’s housing horrors – Ken Livingstone, October 24th 2011

‘Back of a fag packet’ housing policy continues – Kevin Gulliver, October 3rd 2011

Social housing needs a ‘New Deal’ – Kevin Gulliver, September 28th 2011

Why isn’t Boris coming up with any solutions to London’s housing crisis? – Jenny Jones AM, September 9th 2011

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16 Responses to “Shapps’s subprime stimulus is a bailout for housebuilders”

  1. Alex Marsh

    I’ve got to agree with a lot of what Kevin says here. While this strategy contains some useful modest initiatives, the headline proposals are more likely to be positively harmful.

    My fuller response to the housing strategy statement is here:

  2. Alan Kiel

    Shapps' subprime stimulus is a bailout for housebuilders

  3. Blarg1987

    It is interesting when house prices were skyrocketing and developers could easily install PV cells on roofs etc they did not. Now they say there is no demand for housing do the mean the profit margins are far less?
    I agree the goverment should turn around and say to the developers we will build housing for very little profit in 2 years if you do not start building now, that way developers who are trying to hold out for higher prices will be forced into building now for some profit or not building in future and have no profit.

  4. Alan Kiel

    Shapps' subprime stimulus is a bailout for housebuilders

  5. Brandon Glenn

    Yesterday the coalition government launched its much delayed housing strategy purporting to 'get Britain buildin…

  6. Alan Kiel

    Shapps' subprime stimulus is a bailout for housebuilders

  7. Lorenzo Ferrari

    Shapps' subprime stimulus is a bailout for housebuilders – Left Foot Forward #Bailout

  8. Tony Ellis

    RT @leftfootfwd: Shapps’s subprime stimulus is a bailout for housebuilders

  9. Kim Clifford

    Shapps' subprime stimulus is a bailout for housebuilders

  10. Sen Tinal

    Shapps' subprime stimulus is a bailout for housebuilders: Yesterday the coalition government launched its much d…

  11. Dennis E.

    Shapps' subprime stimulus is a bailout for housebuilders: Yesterday the coalition government launched its much d…

  12. Duncan Vessey

    Shapps' subprime stimulus is a bailout for housebuilders, writes @kevingulliver:

  13. Clarebelz

    And this time around, the government will be liable. So the previous and present governments bailed out the banks when the housing bubble burst due to sub prime lending and the underwriting of that, and if that wasn’t enough, they now want to support a new housing bubble, which they themselves will underwrite!

    And sell to social housing tenants for 50%? Don’t make me laugh. The majority of social housing tenants claim partial or full housing benefit; they certainly won’t be able to benefit from that. No one has seemed to join the dots yet on this disgraceful policy, so I will explain and hope that some journalist out there finally does so.

    Every, new let by my social housing provider is now let at 80% of private rental market rates. Not so much a problem you may think if indeed a family claims housing benefit. In less than 2 years however, housing benefit will stop being uprated in line with inflation. The gap between housing benefit and actual rent was 70% over the last 10 years. Perhaps in the next 5 years then, many new and existing social housing tenants will not afford to pay the difference. Fines charged for over occupancy will also be added to that, which will affect secure existing tenants. Along with the decrease in housing benefit, and also the increase in ‘target rent’, known as ‘convergence’, which aimed to bring all social housing in an area into the same price bracket. It started in 2002 and should have ended next year, but is now going to be extended meaning even higher rents for existing tenants (my rent rose 10% this year).

    The government is well aware of these affects on new and existing social housing tenants. Most of those either totally or partially reliant on housing benefits, whether they are in low paid work or disabled and unemployed, will not afford the higher rents. In 5 years time, if not before, these people will start to lose their homes, and since they cannot afford to rent in the private sector a good many will be homeless. So who gains from the 50% discount? Only someone who earns average wage would be able to afford the new rents. These people have been priced out of the property market, but most could afford to buy social housing with the new discounts. Hey presto! Hundreds of thousands of properties available for sale without lifting a single brick.

    Meanwhile, existing tenants have no hope at all. I live in an area of one of the cheapest rents in the country; there is no cheaper place than the home I live in! There are no hostel places, or any boats spare. Many people have no families to take them in. Many are vulnerable and chronically ill like myself. I wouldn’t last one week sleeping rough in the winter. My carers work, but employment wont save their homes either. Work really doesn’t ‘pay’ for them. I have said this many times, but it is as if the government think that they can wave a magic wand and the poor and disabled will just disappear.

    But you see, Grant Shapps was right: there were cheaper places for me to live. I’m currently looking at my ‘Farrow and Ball’ colour chart for my open plan new-build Waitrose cardboard box, but I just cant decide on colour schemes…

  14. Newsbot9

    “What’s needed is a real housing strategy that recognises homeownership reached its zenith in the mid-noughties, that social housing needs to be revived…”

    Not really, those are medium/long term solutions. What we need right now is to stop the Tory social cleansing. That means rent caps. It means taxing empty property and unused brownfield land…

  15. Osborne's stimlu-lite is more pork for vested interests | Left Foot Forward

    […] mortgage indemnity scheme we have covered before. The government will underwrite 95 per cent mortgages to first buyers, ensuring that the lender […]

  16. ‘Downsizing’ the housing strategy | Left Foot Forward

    […] Shapps’s subprime stimulus is a bailout for housebuilders – Kevin Gulliver, November 22nd […]

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