Budget does not tackle crisis

The day after the Homes for Britain rally, the largest cross-sector housing rally in recent times, many waited in hopeful expectation that the chancellor’s budget might signal a new way. They were disappointed.

A Budget at this point was always going to be about consolidating the narrative before the election.  That narrative is one of responsible economic husbandry (hence no splurging to buy favour with voters – every spare penny is earmarked for deficit repayment). So far as the housing crisis is concerned, government is tackling is the ‘boomerang generation’ returning to live with mum and dad. It is not attempting to tackle the crisis as we’d recognise it.

Given that context, it is little surprise that in many ways this was another Budget for homeowners - or more precisely, homebuyers.  The Help to Buy ISA, which will see government giving up to £3,000 to first-time buyers if they save £12,000 for a deposit, is about demand, not supply. It won’t increase the supply of homes. If anything, it will inflate prices, and it is fundamentally unsustainable – as prices continue to rise, government will need to provide ever-greater subsidies. But in the short term, it reassures boomerang generation parents that their kids stand a chance of getting onto the property ladder. And government hopes that may be enough to make the problem go away.

Beyond that, the announcement of 20 new housing zones outside London is significant – they have the potential to boost local strategic housing decisions. And there were a lot of repackaged announcements, from the garden city at Bicester to the London Land Commission.

The Budget document trumpets the government’s housing and planning achievements (echoing Conservative chairman Grant Shapps at the rally). The bottom line is 537,000 new homes built over this parliament. As Jules Birch observed on our Housing Live blog on Budget day, it is impressive…until you realise this is the number of homes needed over two years, not five.

Homes for Britain calls for all parties to commit to ending the housing crisis within a generation and to outline a proper strategy to do so within a year of taking office. This Budget certainly doesn’t come close. But it emphasises present inadequacy.

Whoever wins the election, they won’t increase grant significantly. As Julian Ashby explains on page 17, the future for social and affordable homes lies in landlords using their own resources to supplement and secure loan finance – in other words, surpluses (profits, even).  

It is good news, therefore, that the Homes and Communities Agency’s (HCA) global accounts for 2013/14 show that the combined surplus of England’s largest 336 landlords rose to £2.4bn from £1.9bn last year. The increase is partly down to low interest rates, but the largest growth comes from sales, including build-for-market-sale.

The question of how surpluses are made generates debate. Though most would agree that providers should wring every last penny of value out of commercial activity for cross subsidy, and that it is important to look at the bigger picture to ensure commercial activity doesn’t have unforeseen consequences that undermine the delivery of affordable homes. The HCA’s warning about low margins on commercial activity is stark – though the regulator acknowledges that high volumes mean that often significant sums are still generated to invest in development despite low margins. Such debates are very important.

What we should no longer be debating is whether a surplus is a good thing: it is the only answer. The sector must be comfortable about this and must step up efforts to educate and challenge misconceptions and misconstruals in the outside world.