Labour government’s move to shake up the planning system will have a material impact on alleviating the housing crisis. However, supply-side measures on their own won’t be enough to fully solve it.
While there is of course demand for new homes, inflation in house prices following the global financial crisis – and the era of unsustainably low interest rates that followed it – has meant that homeownership continues to be an unrealistic ideal for much of the population.
Low interest rates and low supply as a result of an overly obstructive planning system has created a deposit barrier,where many would now struggle to save to put down the amount needed to get a reasonable mortgage for the property they require.
Despite the more pro-growth planning environment they are likely to encounter under Labour, house builders will struggle to accelerate housing delivery unless they can sell into a more active market. But this is a market that has been constrained by a combination of higher prices, slow wage growth, and the cost-of-living crisis.
Confidence boost
The Help to Buy initiative, while controversial, instilled confidence in the market to great effect. It meant first-time buyers didn’t need to save for a 10% to 20% deposit to access an affordable mortgage interest rate. In some cases, buyers could secure a home by putting down a deposit of just 5% and still access competitive borrowing costs.
Despite the massive rise in house prices between 2013 and 2021, by 2023, 328,000 transactions had been completed to give first-time buyers a chance to get onto the housing ladder. At the end of the Help to Buy programme in 2023, the policy accounted for around 30% to 40% of all house builder sales.
By the end of Help to Buy, the initiative contributed to nearly 40% of all house builder sales.
This was helping to deliver approximately one sale per outletper week (SPOW) – a key industry measure. This was significantly higher than the previous average of around 0.7. The policy clearly had a big impact in terms of accelerating sales rates by allowing people to more easily access homeownership.
While sales rates have recovered from the impact of Liz Truss’mini budget, they are still significantly below the highs of 1SPOW – a result of both macroeconomic factors and, arguably, the end of the government’s Help to Buy equity loan assistance.
Missing the bigger picture
So why, then, did the Conservative government end Help to Buy? A key reason is that the media became overly focused on the house builders’ profits and bonuses, and how these were being underpinned by the government support – combined with a growing sense that the initiative, and therefore the government, was fuelling house price inflation.
However, any accusation that the initiative was contributing torising house prices misses the point that this was largely because the policy was being enacted without the supply-side measures we are starting to see being introduced to the planning framework – meaning demand was being supported against a housing stock that could not increase at a corresponding rate.
The neglect of Help to Buy as a demand-side measure to support Labour’s planning reforms could come to be judged as a major political own goal. While much has been written about the benefits – and pitfalls – of the policy, commentators have too often neglected the economic benefits it could deliver for the government and country at large.
