Help to buy could be worsening London's housing crisis and driving young people out of the capital

City A.M.
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House Prices Are Stagnant In London
Housing supply remains short in London, while prices have rocketed (Source: Getty)

Are you tired of London? Want to move to a quieter, cheaper part of the country? If so, you’re not alone – every year, thousands of people quit the city in search of a more tranquil existence.

However, they tend to be replaced by a new wave of incoming urbanites, typically young people attracted by London’s culture, nightlife, jobs, unparalleled career opportunities, universities, and existing hoards of good-looking, like-minded 20- and 30-somethings. The capital’s population boom (which has gone hand-in-hand with an economic boom) tells us that more people have been arriving in our great city than those deciding to call it a day.

This boom cannot be taken for granted, though. Worrying figures published yesterday show that the number of the number of 21 to 40-year-olds leaving London jumped by seven per cent in 2014, compared to the previous year. The results were “mainly being driven by Londoners in their early thirties”, according to the Silvertown Partnership which commissioned the survey. That is, needless to say, exactly the age at which many people start to worry about the housing ladder.

Sadly, London’s housing crisis shows little sign of abating. Only 32,910 new homes were given planning approval last year, according to separate figures out this morning. To put that in context, it is 22 per cent behind an official target set out by the mayor of London.

The data, published by estate agent Stirling Ackroyd, follows news that the average London home costs over half a million pounds. Mortgage lending in London has fallen, especially to first-time buyers. Just last month, figures from the National House Building Council showed that the number of new homes registered in the capital last year fell nine per cent.

You get the picture – supply is short. And to make things worse, easy money and misguided government policies are doping the market and elevating prices.

Somewhat astonishingly, housing minister Brandon Lewis recently claimed that “figures prove help to buy boosts [the] supply of new homes”. His so-called proof was contained in a report commissioned by his own department (quelle surprise).

Read more: The kids aren't alright as millennials flee from London in droves

Looking at the report, it’s difficult to know where to start. Firstly, the authors admit that it is not possible to calculate the effect on supply. Instead, they attempt a “best estimate” by examining the demand side of the equation (we kid you not). New house-buyers who have personally benefitted from help to buy equity loans are asked if they could have done it without the scheme.

Those who answered indecisively or said “don’t know” are, farcically, lumped in with those who said they could not have afforded to buy the same property, a similar property, or any property. Some 43 per cent fall into that category. Because this part of help to buy applies to new-builds, it is then assumed that 43 per cent of new-builds would not have been built at all if the scheme didn’t exist.

Confused? You should be.

More important than the report’s methodological shortcomings is the fact that it only examines one part of help to buy (namely the equity loans on new-builds). The mortgage guarantee element, the help to buy ISA, and the London-only help to buy rates are not included – perhaps because these interventions are not limited to new-builds, and thus stoke up demand for an already overheated housing market.

The vast majority of the government’s interventions – including the impending “starter homes initiative”, which would give a 20 per cent discount to some first-time buyers – are therefore ignored.

For an idea of the effect that these giveaways could be having on the London property market, heed this warning from housing expert Jules Birch: “In London, the government could end up supporting 60 per cent of the value of [some] homes”, Birch says, through a combination of the above schemes. The Conservatives are playing a dangerous game.

Chancellor George Osborne has pledged to boost the UK’s supply of housing (“We are the builders!” he told Tory conference last autumn) but so far in London we have not seen the effect of his promises. Instead, there are legitimate concerns that demand-side interventions have only made the situation worse.

London’s success as a city that attracts young people and helps them thrive cannot be taken for granted. As this newspaper has constantly argued, the authorities – in City Hall and Whitehall alike – must take decisive action to allow significantly more residential construction, even if it means a radical overhaul of our planning laws.

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