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Housing crisis

The Chancellor's plan to restrict the tax advantages enjoyed by buy-to-let landlords has led to stringent criticism from the property world.

But is it justified or are the moans because the easy way to make money is coming to an end?

Part of the problem is that many developers are building for the buy-to-let market and not for first time buyers, who are the drivers of a healthy housing market or for pensioners who may wish to trade down thus releasing family homes on to the market. This problem has been exacerbated, particularly in London, by foreign investors who purchase property as a “money box”, not even bothering to let it out. Many see it as a way of protecting themselves against future political risk in their own country or as currency diversification. Housing crisis resized pic

It is true that before the second world war the number of rented properties in the UK was significantly higher as most people did not earn enough to buy a house with or without a mortgage.  But since then the idea of a property owning democracy has taken hold as the country's economic performance improved, earnings rose and the housebuilding industry had a target to meet a lot of the demand by comfortably building 200,000 or more homes per year.

Then came the Thatcherite revolution with the right to buy council houses which cemented the belief that everyone was “entitled” to own their own home.  The objective that money from those sales should be used to build replacement social housing was never achieved as recalcitrant councils used the proceeds for other pet projects and the Government never enforced its objective.

Most of the building firms in the fifties and sixties were private companies and many others were small so built on infill sites or built small developments of half a dozen houses or so.  Now the small builder finds it hard to compete leaving the field clearer for the big developers who stockpile land and try and dictate the type of housing and where and when it will be built.

Where once a buyer could buy a development's show house for a discount now those houses are often snapped up by buy-to-let landlords further restricting, albeit by a small amount, the potential available housing stock.

Generally speaking it is never a good idea for Governments to interfere in free markets and the latest attempts by first the Coalition and now the Conservative one also have their flaws.  The two help to buy schemes merely acted as a boost to demand, i.e house prices rather than helping the supply side, i.e first time buyers on to the housing ladder at a reasonable price.

A similar problem occurred in the eighties when the Tories abolished dual tax relief on mortgage interest but instead of stopping it overnight it allowed six months of frenetic house buying driving up prices and creating a property boom. 

This was followed by banks being allowed to enter the mortgage market and, to attract market share, they offered several more times a borrower's salary than had been traditionally allowed by building societies who to protect their position followed suit.  Cue another boom.

Supply seems to be the key. If Government truly wants to help first time buyers it should insist that it will not relax planning laws until local councils in partnership with builders have developed all the brownfield sites in and around city centres and that developers have less than a year's supply in their landbanks.

Hopefully that would help boost supply, moderate prices and create an environment where youngsters are no longer forced into paying high rents or living at home with mum and dad.

Yes shareholders in building firms may moan and the organisations themselves will lobby against.  But they always have lobbied against anything they perceive will prevent them making money and boosting profits.

Instead of paying lip service to ethical and social responsible investing they should actually do it.

By Paul Quade

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