Housing Policy: The Current Situation and Future Directions

1. CIC Economic and Policy Forum Housing Policy – the current situation and future directions Peter Williams, Director, CCHPR, Cambridge

2. My Presentation • Follow on from Allan • Evident that the housing market is not in a good shape – question what happens now? • The Current Context • A New World? • FTB Prospects • Housing policy • Conclusions

3. The Current Context • Complex, fast changing and very uncertain • Markets are nervous and capital is being hoarded – the improvement in credit conditions has been halted • Demographics shifting –more older households, fewer younger households -impacting upon HO • Home ownership falling since early 2000s – mortgaged owners down and HO % is down • OEF project fall to 64%, down from 73% - but regional splits?

4. The Current Context • Politics and economics; • Political pressures growing – party of home ownership though…. • Economic pressures for growth and housing a good multiplier – not just FTBs • Problems elsewhere in market -2nd time freeze • Turnover down at 50% • FTBs or BtL?

5. A New World? • From £360 bn gross and £110bn net in 2007 to ? • What is new normal? In volume and LTV terms • Steady return but more costly, tighter access? • Asset growth constrained by regulatory changes, low interest rates, enforcement actions, banking reform

6. FTB prospects • Little wonder home ownership remains a strong aspiration albeit fluctuating and weaker amongst younger age groups • Numbers of FTBs down by 50%, average age increasing and parental assistance key –distributionally significant • Access has weakened and past evidence re cohort catch up? • As noted new funding and regulatory environment tighter – access more expensive/restricted – distributional consequences • What then can be done?

7. FTB prospects • Limited response from government and likely to remain so though will up political game • Core concern in the market given the importance of FTBs to overall turnover/activity but ….? • Some product innovation; • Lend a Hand and variants plus Offset and Savings pledges • Co-Ownership – Mill Group • Partnership mortgages and HOUSSAs –Castle Trust • Aldermore with Hitachi unsecured • Mates mortgages?

8. FTB prospects • Current work on risk to lenders via builder cover and return to MIG cover for higher LTV • New focus on information and advice • Modest return to higher LTV lending but unlikely to see return to pre 2008 for say 15 years? • LCHO lending returned to a degree but viewed as higher risk and no solution yet re CRD • Temporary or permanent gap in asset accumulation

9. Going forward • Baby boomers have assets – asset rich and possibly income poor, children might be income rich but asset poor • Is the HO boom key to tackling the fall of home ownership? • Clearly questions as to how much of this asset base will be available given pensions/health/aspirations etc? • Plus unrealistic expectations of younger generations? • New models of rent to own, role of leasehold • But should we be doing this –risks to vulnerable borrowers? • Price edging down outside of London • But concentration risk, volatility and government aspiration for greater price stability

10. Housing policy • A complex set of issues! (see Savills latest Residential Property Focus) • Housing policy review to be published on 26th October –led by Cabinet Office/No10 • Recognise the problems re supply/FTBs and Qs re planning impacts • Taken a number of steps re regional targets/structures and on Homebuy Direct/FirstBuy, NHB, NPPF, HB/Welfare reform, social housing reform including affordable rents • Elements but a strategy? What are the gaps? • Clearly a concern with stability, supply and FTBs but no money • Tensions across govt – BoE, FSA, CLG, HMT, DWP • Any government initiatives will probably not be sufficient unless a wider strategy • Ever less efficient use of stock – again a tax agenda? • Better use of existing LCHO stock and more RSL/LA activity • Lender/Builder on high LTV and use of MIG • Market more like 1970s with gtees/LA/HA mortgages etc to support bottom of market • Appetite for long run solutions?

11. Housing (and Planning) Policy • NHB 6 years council tax for new devt/brought back into use plus bonus for affordable –worth say 10k – how used? • Top sliced from settlement so if not active – lose out • NPPF consultation –presumption in favour of sustainable development (not defined)- due 2012? Simplified – good but might be driven by case law/appeals/inspectors – SOS only on bigger sites • Reliance on districts – neighbourhood plans optional and cant overide – possibly time consuming/expensive/public inquiry paid for by PC • CIL introduced on a discretionary basis (2 Las to date) and overrides Section 106 – CIL for infrastructure, 106 for on site options – less 106? • Unknown impacts but clearly planning applics down!

12. Conclusions • Housing market and housing policy in play –unknown outcomes • Pressures are building - backlog plus new demand • Search for funds –for development/finance for builders/HA/LA/Landlords/Homebuyers and focus on assets/incentives/market • Growth review key to this and housing’s place in it – a quick and direct multiplier – signals housing will win? • The Market rather than the State • The risks of a slow recovery/fast recovery • Given rates, economy, confidence, events hard to see much changing quickly • No real political appetite or capacity in government and market is where it is!

13. Discussion Peter Williams prw36@cam.ac.uk