Mortgage Crackdowns and Help-to-Buy
Lending could be subject to a cap via instructions by the Bank of England to prevent homebuyers taking on too much mortgage debt. This follows a bout of criticism for the Help-to-Buy scheme, with some suggesting that it has come to the end of its useful life now that the economy is moving again and must be adjusted or overhauled before it can over-inflate the property market to bursting point.
Many objective critics are instead suggesting that, rather than do away with the scheme as a whole, why not curtail it both in areas with the greatest house price pressure and in regions with the highest average prices. Leaving the scheme in place for the remaining areas may help to provide greater balance.
Whilst Mark Carney, Governor of the Bank of England, has stated that the housing market is beset by “deep” problems, the BofE has yet to actually do anything of consequence – in particular, leaving the base rate where it is at an all time low.
Thus, whilst many areas of the country, including much of the South Coast, the South West, the Midlands, Wales and the North are effectively only slowly coming out of recession, the vast increases in value in properties in London have significantly distorted the average house price index and artificially modified many people’s perception of the market as a whole. The property market should rarely be viewed as one whole, however, being in actuality split into hundreds of localised micro-markets, and it is our view that whilst certain constraints – like the proposed cap – might be appropriate and relevant for London and the immediate South East, these are deeply worrying for a number of areas of the country where the economy is recovering but is still in a fragile and more perilous state.
A cap to affect all areas of the country, therefore, would be a poor solution to a problem which is fundamentally localised. Better, would be a regionally differentiated version of the Help-to-Buy, maximising its success so far, without threatening the economic recovery by supporting unsustainable price rises.
Greenfield v Brownfield
We have written before about the battle between Brownfield and Greenfield sites, most recently in our article and Bunbury’s Comment for the May edition of our monthly newsletter.
Certain commentators and politicians, some of whom are described in that article, continue to press the idea that we should build our way out of recession by constructing on Greenfield sites. Whilst Greenfield sites should certainly not be sacrosanct at the expense of persons being homeless, new buildings however should be first constructed, where appropriate, on the Brownfield sites not being utilised.
Unfortunately, simple economics stand in the way of this concept – with the costs of demolition, boundary constraints, access restrictions and decontamination making developers reticent towards Brownfield development sites, as there is generally less profit to be made.
It’s all about the Money Money Money
Not only is it often far cheaper to build on a Greenfield site than it is on a Brownfield site, but when it comes to selling the property, saleability can also be greatly increased on Greenfield plots – with the added benefit of a green pleasant view or setting. With typically lower land prices, plot sizes can also be larger – potentially allowing space for parking, gardens, paddocks and outbuildings, all of which can add to the property’s overall value and, consequently, the developer’s net margin.
Whilst under-supply is highlighted as the major problem for the UK housing market as things stand, many seem to neglect that in forgotten corners of the country house price rises are low and available properties are plentiful. Crucially, these are just not in areas attractive to most homebuyers at this time.
Returning to the regional divide then, perhaps more needs to be done to encourage commerce into these areas and provide a reason for people to move there. Doing so would make better use of the incumbent housing stock, at least partially relieving the need for so many hundreds of thousands of homes in the ‘hot spots’.
The reality, though, is that proportional to the potential cost of such measures, the benefits may not be strong enough. Ultimately, the key sustainability problem, in terms of house prices, lies with London and the areas surrounding London. Measures to bring business into North Wales for example, however strong, are unlikely to deflate demand in the Nation’s Capital and centre of commerce.
As with many pragmatic solutions, the answer may lie with a several pronged approach. A cap to curtail demand in the South East, complete with the removal or adaptation of the Help-to-Buy scheme in that area, could be combined with strong economic incentives for business in a wide range of areas from Cardiff to Newcastle. Brownfield incentives could then be brought in to turn London’s wasted spaces into useful homes and businesses, along the lines previously suggested by Bunbury.
Naturally, there will be a tendency whilst the economy continues to improve to forget about the minor inconveniences of a North / South or London and the Rest divide. A sensible Government though would understand that localised unsustainable and rapid short-term success can be a danger to the sustainability of our future and would be well advised to begin introducing measures now which might seek to re-balance this country for the future and deflate the rapidly escalating situation in the Nation’s Capital.
LCB / SRJ 02/06/2014