Nice try housing secretary, but your ‘First Homes’ policy will do nothing to solve the housing crisis
There is a housing crisis in this country.
In our cities in particular, the majority of people are spending a significant chunk of their income on rent or are unable to afford to move out of the family home. The idea of home ownership is now a pipe dream for many young people — a third of millennials will never be able to buy a home.
It is therefore encouraging to see that this government seems intent on making housing a priority. Unfortunately, the road to hell is paved with good intentions — as is the case with the latest announcement from the Ministry of Housing, Communities & Local Government.
The new plan, announced last Friday and optimistically entitled “First Homes”, would aim to grant first-time buyers a 30 per cent discount on the price of a new home. According to housing secretary Robert Jenrick, this will translate to an average saving of £94,000 per home.
If this is sounding too good to be true, that’s because it is. The policy is riddled with problems and, more importantly, will do nothing to solve the underlying cause of the housing crisis.
Jenrick has claimed that the discount will be funded “through the contributions that housing developers routinely provide through the planning system”. The burden, therefore, will ostensibly be carried by the developers — who tend to evoke little sympathy.
But while attacking developers as greedy land barons might work well in the press, it won’t end the housing crisis. It should be obvious to anyone with half a brain that if developers are burdened with building affordable housing, they are less likely to want to build at all, reducing development.
Moreover, these contributions as they currently exist are often an important tool in overcoming the objections of local communities to new developments, helping to tackle “nimbyism”. They are used to build new infrastructure, making the developments less objectionable to local residents who can see the benefits to their communities.
Again, the problem with the First Homes policy is clear: diverting these contributions into a discount for new buyers will simply exacerbate the fears of local residents, meaning that the new homes are less likely to ever be built.
Finally, consider what will happen if the homes are eventually built. The policy sets out that the 30 per cent discount will be passed on with the future sale of the properties to other first-time buyers. But trying to apply the discount in perpetuity will be a disaster — while it might help the original buyers afford to buy their own home, it risks further distorting the housing market.
The original purchasers might be happy in their home for a few years, but if they decide to have children or need to move to a more expensive area for work, for example, they may well find it impossible. Locking in the discount reduces the value of the home, making it more difficult to sell. And even if it is sold, the reduced sale price will make it harder for the sellers to afford their next property
As such, the family which wants to move out is stuck in the house, while a new family which wants to move in is unable to. This policy risks gumming up the housing market in certain areas for a generation or more.
Thus we see the unintended consequences — and potential pitfalls — of this undoubtedly well-meaning policy proposal. It may help a small number of people for a short period of time, but such tinkering around the edges of our broken system will do nothing to solve this country’s housing crisis.
Back to the drawing board, housing secretary.
Main image credit: Getty