While chancellor George Osborne’s Budget yesterday had a strong housing focus, which was welcomed in housing circles, the announcements failed miserably in the face of a growing UK housing crisis.
While chancellor George Osborne’s Budget yesterday had a strong housing focus, which was welcomed in housing circles, the announcements failed miserably in the face of a growing UK housing crisis, writes Kevin Gulliver.
There are today 1.7m households on council waiting lists, homelessness has grown by 68 per cent since 2009 and last year’s house building figures were the lowest since the Second World War and 45 per cent down on 2008 when the financial crisis hit.
The chancellor’s response was to announce a series of small loan funds aimed at pet projects – £525m development finance to encourage small and medium size builders, £150m to help self-builders and an inadequate loan pot for the private sector to become involved in inner city estate regeneration.
Alongside this, the prime minister’s on-off romance with garden cities finally blossomed with one now planned for Kent, although when it will be built (never mind if the initiative will ever be extended across the country) is debatable given the growing nimbyism in Tory ranks.
The extension of the Help to Buy scheme for would-be home owners to 2020, at an estimated cost of £6bn is an ineffective means of increasing affordable housing supply but highly efficient at stimulating demand and inflating house prices. It worsens rather than tackles the underlying affordability problem in the UK’s housing market.
Already, the ratio of the average house price to average income, at 6.7, is heading towards that recorded in 2008, at 6.9, despite five years of housing market stagnation. The affordability crisis in London is even more pronounced with house prices averaging 9.7 times average incomes. The home of the Russian oligarch – Kensington and Chelsea – has a house price to income ratio of 27.8.
The extension of Help to Buy can only mean a renewed house price bubble and signals an earlier increase in interest rates than is healthy for the wider economy. A far better policy would have been to invest directly in bricks and mortar, especially in the social housing sector, to bridge the gap between the 250,000 homes required annually and today’s 110,000.
Despite the chancellor reiterating his ‘we’re all in it together’ slogan, he announced renewed downwards pressure on welfare benefit claimants, with the exception of pensioners, by imposing a cap on the £119.5bn welfare budget for 2015-16 to act as a restraint on the totality of future welfare spending. Annual uplifts will be restricted to 1 per cent or CPI, whichever is lowest.
The cap not only imposes a further real terms fall in living standards for welfare claimants to sit alongside the household benefits cap and the bedroom tax, but also calls into question the affordability of even social rents, which are set to rise by CPI plus 1 per cent for the next few years, for the poorest.
Research by the Human City Institute shows that social tenants have seen their incomes significantly eroded by more than one tenth since 2008 – equivalent to a £17 fall in spending power per week from the average social tenant income.
Despite changes to welfare intended to ‘encourage’ people into work, social housing has seen worsening levels of economic inactivity and rising rates of benefit reliance because of the poor shape of the economy. The ‘net’ economic activity rate – excluding retired tenants – has fallen from 41 to 37 per cent since 2008.
Social tenants also have few assets upon which they can depend – two thirds have no savings at all, and of those who do, almost half have less than £1,000. With the Social Fund virtually gone, tenants are left with few options at a time of need except to seek out loan sharks or take up loans from doorstep lenders or from payday loan companies charging massive rates of interest, putting further pressure on incomes already stretched to breaking point.
It is clear from the Budget that we are not ‘all in it together’. Home ownership is receiving large subsidies and house prices are kept artificially high by the continuing gap between housing supply and demand.
At the same time, social house building withers on the vine and the replacement rate for the ‘rejuvenated’ Right-to-Buy is stuck at one new home for every seven sold. Persistent attacks on welfare claimants, many of whom live in social housing, also challenges the affordability and viability of many social housing communities into the future.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.