Chancellor of the Exchequer George Osborne has emphatically announced that housing shortages will continue to trouble the UK for at least another decade, marking the latest chapter in the ongoing housing debate.
Speaking to the Lords economic affairs committee, Mr Osborne praised the impact that the governmentís Help to Buy and Funding for Lending schemes have had in restoring consumer confidence in the property market, but argued that a multitude of different goals need to be attained in order to bring supply back into balance with demand in the country.
“I think the recovery is under way Ö but there is still much to do,” he said. “Some of the US data in the last couple of weeks has been a little bit soft.”
Mr Osborne also dismissed the notion of a housing bubble occurring in the future, arguing that despite the artificial inflation in demand that the Help to Buy and Funding for Lending have caused, that house prices still remained far below the value they displayed at their peak before the recession.
The second phase of the governmentís flagship Help to Buy scheme was introduced last Autumn, and a multitude of different banks have signed up and offered the special mortgages that fall under the scheme.
The policy has enabled thousands of prospective homeowners to acquire property with a deposit as little as 5%, whilst mortgages of up to 95% loan to value have been made available and easily acquired through the Help to Buy. Moreover, with rates being held at 0.5% by the Bank of England, many have obtained cheap mortgages with cheap monthly repayments, but fears have arisen about what will happen when rates do eventually rise, particularly in the capital where property prices are substantially higher than the rest of the UK.
Mr Osborne identified that if there was any hint of an actual bubble being on the horizon, he would grant the Bank of England special policymaking powers in order to address the issue and bring it back into balance. The Chancellor did however accept that much work needed to be done in order to improve house building levels, and pledged to implement a number of reforms in the near future to address the issue.
“I think the planning reforms are clearly working. You see planning applications up, planning approvals up, and the percentage of planning approvals up,” he said. “It is having I think a positive effect on creating new homes and those homes are being built in appropriate places.
“Across the board, we are pulling a lot of levers. But this is a historic problem Ö I don’t pretend this problem is going to be solved in a few months or a couple of years.
“This is a big challenge for our country. We have got to build more homes.”
He added: “I imagine if we were to assemble again in 10 years’ time we would still be talking about the challenge of making sure our housing supply keeps up with demand.”
Despite Mr Osborneís vehement rejection of any potential disasters in the property market, the government has faced a period of intense scrutiny from politicians and economists alike due to the soaring prices of property at a time when actual wages of workers have remained stagnant.
Many have argued that if the complexion of workerís wages remains the same, and the cost of living continues to rise at a faster rate, that many people will be priced out of their areas in the future as they will be unable to cope with the new financial demands of price hikes.
In particular, London has been identified as a hugely problematic area in the future, with service forecaster Ernst and Young worryingly predicting that the average property in the capital will cost over £600,000 by 2018, just four years from now.
This would be far out of reach of most young people, and alarmingly this prediction appears accurate considering that Londonís average property shot up by 11.2% last year, compared to the 5.4% UK average.
The Think Tank Civitas and the EY Item Club both attributed the huge price rises to foreign investors, who themselves have been artificially putting prices up in the capital due to the huge demand for top range property in the London. This has had the knock on effect of inflating prices due to external demand, whilst also inhibiting builders from constructing more low and medium range properties when they are really needed.
Perhaps a change in the foreign investment policy of the UK would go some way to helping the capital deal with its endemic housing problems, with the imposition of a regulation that requires all foreign investors to contribute to supply
should they wish to buy a number of top range London properties.
Moreover, keeping rates low for now, and encouraging house building firms to create less expensive and expansive property will go a long way to ensuring that acquiring a home is in reach of the everyday workers finances.
To the governmentís credit, David Cameron did announce that the number of regulations on house building firms would be decreased to just ten, down from 100 in a move that is set to save them up to £60 million collectively each year.
However, more needs to be done to ensure that our recovery is sustainable, and that the repeats of the past do not manifest in reality again and cause a bubble that will take even longer to recover for. Mr Osborne for now has pledged to be vigilant, and has retained his reactionary stance to the property market.
Osborne said: “We are recovering from a property crash. Am I someone who says we should be vigilant about this? Absolutely we should be vigilant Ö
“As is clear from the Bank of England’s reports, they do not at the moment see what you would describe as a bubble, but they are vigilant.”
Whilst this may be fine for now Mr Osborne, you may find yourself looking red-faced if you donít act fast and address the issues that everyone is aware of, and you are tasked to deal with.