Traditionally a house purchase served two purposes – to keep a roof over a family’s head and as an investment. That investment relied on house price inflation running ahead of purchase and funding costs over a sustained period.
Recessions in the 1980s and 90s were but blips. What is different now is not just the length of the dip but the height of the boom that preceded it.
To the surprise of many, the PLC housebuilders survived after 2008 but sales volumes are low. They sustain decent turnover by rigorous cost cutting, only going onto “shovel ready” sites, but that may be masking reality. Lack of confidence and lack of funding feed off each other to create a paralysis that must be broken. How?
• Expand guarantee schemes such as MI new home.
• Reform stamp duty and abolish it below the levels inhabited by the typical first and second-time buyer.
• Concentrate public expenditure on areas that create value and jobs and improve the environment.
• Streamline the planning system.
• Wrap up all permissions required for development in a single application.
Those steps might break that paralysis, but that does not mean the old model is the correct one for the next generation.
People change jobs more often, they move around and there are more self-employed. This has created a growing sector for whom house purchase is not compatible with their lifestyle and career. We need to provide for them through a rental sector that is devoid of stigma, and just as smart a choice as buying.
This new mid-market rental sector should be able to attract non-bank funding from pension funds, sovereign wealth funds and others willing to invest in a quality product whose target market is those who might otherwise have bought £200,000 to £300,000 homes.
This would stimulate building with all the benefits that brings the economy, provide quality homes for the mid-market, and remove the need for sizeable deposits. It would de-risk the housing market for consumers and leave the risk where it should lie – with developers and funders.
Laurence Fraser is a partner at MacRoberts LLP.