Photo by Blake Wheeler on Unsplash
Ever since I started working in my first graduate job two and a half years ago, I have dutifully been investing £200 per month (the maximum investment allowed) in a Help to Buy ISA. As a millennial 21-year-old with old-fashioned dreams about being able to own a box room in an outer suberb by the time I’m 40, the 2013 loan scheme sounded idyllic. For every £200 I put away up to the value of £12,000, the Government would give me £50 – with only a few strings attached – towards the value of my first property. What could possibly go wrong?
Well, as I’ve discovered since my first bright-eyed and bushy tailed foray into the world of George Osborne housing policies, quite a lot. In fact, today, in a fit of blue Monday realism, I have decided to stop investing in my Help to Buy ISA altogether.
Why? Because the scheme, which our misguided Prime Minister has recently agreed to extend to 2022 (at a cost to the tax-payer of £10bn) is broken. And sadly for me, it looks like the whole first-time buyers’ market is about to go down with it.
The crux of the problem is this: while in most housing markets in the UK, house prices are going down, the sort of houses which are attractive (and affordable) for first time buyers are hitting the roof. Government statistics released last week show that the mean purchase price for first-time buyer properties bought under the Help to Buy scheme rose by a whopping 12% between 2016 and 2017 – and in the same timeframe, the average total applicant household income under the scheme rose from £50,302 to £54,019. The uptrend shows no signs of slowing down, and by the end of the 2018, it is estimated that a first-time buyer buying alone and using the Help to Buy scheme would need to be earning £60,000: a pretty tall order.
To anyone with even a basic grasp of economics, this turn of events was easy to foresee. In any tightly regulated housing market (that is, a housing market where there is inflexible supply), subsidies for the buyer have a negative effect on home ownership because the price effect – through increased demand – more than offsets the income effect from the subsidy. In less regulated markets (with flexible supply), subsidies do have a positive effect on home-ownership rates, but only for higher income groups.
Here in the UK, and especially in the South East, we have an extraordinarily inflexible planning system. Thanks to antiquated ‘green belts’, strict controls on height, lack of fiscal incentives at the local level to develop and ‘not in my backyard’ (NIMBY) behaviour, a vanishingly small 2% of England is built on.
For house building companies, this used to a be a problem worth solving through investment in lobbying. In the era of Help to Buy, it is a blessing. With demand fuelled by the scheme and supply as restrained as ever, to succeed, all house building companies have to do is build a limited number of number of houses on the space available to them – and then sit back and watch the first-time buyers scramble. Jeff Fairburn is currently reaping the rewards in the form of a £100m bonus, but he isn’t the first executive to benefit, and he won’t be last.
For first time buyers like me, whose £3,600 saving pile is starting to look pretty paltry in comparison to the average Help to Buy house price, the scheme is depressing. For Theresa May – who has made it her personal mission to fix the housing crisis – it is a disaster.
Instead of pumping more public money into George Osborne’s rabbit-out-of-a-hat policy, this Government must find itself some reforming zeal and start revolutionizing the way we build.