When Sajid Javid announced last month that the government would allocate a new tranche of money to the Help to Buy (HTB) programme he claimed that this would enable “people to make their dream of owning a home a reality”. But is this expensive policy really doing ‘people’ any favours?
When HTB was introduced in 2013, the UK housing market was in the doldrums. Five years on from the financial crisis house building was at an all-time low, supply constraints were widely viewed to be driving up house prices and home ownership was in decline. By offering buyers of brand new homes extra support, HTB aimed both to stimulate new building and to help hard-pressed families with costs – surely a winning proposition?
Four years on, however, and the real world effects of HTB are increasingly plain to see. To begin, from the outset the policy risked stoking house prices, leaving families pursuing an ever-receding goal. As Figure 1 shows, this now looks like it has come to pass. The growth rate for new build properties has diverged from the secondary market in recent months, suggesting the HTB discount is increasingly being ‘baked in’ to the price of new properties by developers.
Figure 1: House price index by type of build (April 2013=100): England Source: RF analysis of ONS house price index
Second, the evidence suggests the programme has substantial deadweight costs. As Figure 2 makes clear those who have purchased a property with a HTB equity loan have an income significantly higher than the median – indeed, 40 per cent of HTB loans have gone to those with annual incomes of £50,000-plus. Unsurprisingly, DCLG’s own assessment of the policy suggests that 35 per cent of HTB recipients could have bought a home in the absence of the subsidy (albeit perhaps a smaller property or one in a less desirable neighbourhood).
Figure 2: Proportion of Help to Buy Equity Loan recipients by income bracket, 2013-2017: England
Source: RF analysis of DCLG Help to Buy equity loan data, 2017 and FRS
Policies which are self-defeating and poorly targeted are usually left to wither and die. But four years after its inception – and at a cost of £6.7 billion to date – the government is choosing to reinvigorate HTB with the promise of an additional £10 billion of funds for the programme up to 2021. This isn’t just a drop in a large departmental budget either: analysis by the National Audit Office shows that HTB constituted 45 per cent of national government’s housing spend in 2016-17.
All of which begs the question: why the boost for HTB? In the Cameron-Osborne era supporting home ownership was a pre-eminent objective of housing policy, but times are supposed to have changed. The housing White Paper published earlier this year was heralded as ‘tenure neutral’ while the prime minister recently promised £2 billion of funding to support the building of new social homes. Renewing its support for HTB suggests the government’s attachment to home ownership remains intact, but are there other explanations we should also consider?
Could it be as simple as this? HTB is not, of course, a spend but a loan which the government expects to recoup in future years (benefiting from any house price growth that occurs in the meantime to boot). As is the case for student loans, the money the government dedicates to the programme shows up in the public debt, but critically not in the deficit. As a result of its treatment in the public accounts, the government can pump money into HTB without falling foul of its deficit rules.
Whatever the reason for its continued promotion of HTB, the extent of the housing crisis suggests the government must do better than this. While it may have played a useful stimulus role in 2013 it is clearly time to wean builders and buyers off the subsidy, and instead tackle the structural determinants of low supply and high prices head on. £10 billion would build up to 125,000 true social homes; treble that number if some shared ownership and ‘affordable’ rents were put into the mix. This may be an evil in the eyes of the Treasury as it looks to the Budget, but it would be a far greater good than HTB from a living standards point of view.