August is known as the silly season, when the absence of real news means the fourth estate writes up all kind of nonsense. Thus we have had baking and ballroom dancing celebrities, wacky animal stories and even the great “Big Ben bong” crisis. Jacob Rees Mogg also appeared, writes MP and former housing minister Mark Prisk.
Now as parliament resumes, the whole EU and Brexit narrative has returned. Clearly this is a crucial issue, but the hyperbolic coverage in the media suggests that politicians think of nothing else. Actually, many of us are heavily engaged in other issues, from healthcare to school funding, from housing problems to the international stage, not least on the Korean peninsula.
So let me flag up to EG readers another event which is looming and which will help shape politics over the next year. It also starts with a B: the Budget.
B for Budget
For the first time, the annual Budget will be in November. This spring’s Budget was the last of its kind and from 2018 there will be one Budget statement, in the autumn. Hopefully this will bring spending and taxing decisions together and mean that we end the bad political habit of announcing tax changes in March, days before they come into effect.
What might this year’s Budget seek to achieve? Personally, I expect the chancellor will be keen to restore his fiscal credibility, both by keeping a firm grip on spending and by ensuring that tax revenues flow in. I also suspect he will want to have carefully tested any new initiatives, after his recent self-employment backflip.
Mind the gap
Politically, I think the main underlying theme will be tackling what has become known as the “intergenerational gap”. For those aged over 50, many will have enjoyed a university education for free, or very little, and are now, mostly, homeowners. They can also – usually – expect a comparatively good pension. The system has broadly worked for them.
However, this feeling is not shared by those in their twenties, who have large loans from university, see little prospect of ever owning their own home or enjoying a good pension. They feel excluded from what their elders now enjoy. As a Conservative, that is of real concern to the chancellor, and rightly so.
So in November expect to hear much more about these issues and how they might be reshaped to secure a fairer deal between the older and younger generations. What might this mean for the real estate world and the housing sector? I am sure that there will be more housing supply measures, but for once let me focus on demand.
Lower the housing rungs
I would suggest that more can and should be done to lower the first rung on the housing ladder. Some have talked about the mortgage regulations being too tight, but that fails to address the central affordability problem. It is also potentially storing up future problems. Far better to make shared ownership clearer and easier to access and exit.
Why move?
I believe we will need to take a serious look at the transaction costs of home buying, including SDLT. High upfront transaction costs are a deterrent, indeed they act as a drag on the whole market, with transactions at half those of the market 10 years ago. If you can have a new kitchen for the cost of moving, many people are rationally choosing to stay put.
Secondly, we need to help those saving for the deposit, perhaps by making the Help to Buy ISA far more generous. Halifax has recently shown that the average deposit for a first time buy is now £32,899. So the maximum bonus of £3,000 is nice, but not enough. I would like to see this good scheme made more generous both in terms of the bonus and the maximum sum allowed.
Save to build
Lastly, we need to recognise that low interest rates and poor returns for savers have fuelled greater demand for homes as investments – to be let, or kept as second homes. That is pushing money into demand for housing, when what we need is greater investment in building more homes.
So we need to bring forward proposals which would help provide attractive new savings products intended to add to the housing stock, to rent and to buy. This should include a proportion for sub-market rents and prices. This cannot be done in one Budget, it needs careful investigation and preparation. However, the problem needs addressing and that work should start now.
