In his Autumn Statement, Osborne made clear that continued strong growth in house building will be needed in the years to come to meet housing needs and ensure market stability. The OBR EFO notes “the weakness of housing supply” and the “slow response of supply to price signals – which many researchers argue is related to rigidities in the planning system”.
The government has said it is taking action to address these supply side constraints, addressing delays at every stage of the planning process, incentivising improved performance and reducing costs for developers. Autumn Statement 2013 announces that the government will also issue £1 billion in loans to unblock large housing developments and give local authorities additional flexibility through the Housing Revenue Account to support new affordable housing.
Osborne said:
"We want a functioning, stable housing market. The OBR’s latest house price forecast, while higher, still has real house prices 3.1% lower in 2018 than at their peak in 2007. Together with Governor Carney, I acted last week to focus the Funding for Lending scheme away from mortgages onto small business lending, where its support is still needed. It’s precisely because the authorities can act in this targeted and pre-emptive way - and because our public finances are under control – that the Bank can keep overall interest rates lower for longer and support the rest of the economy."
Andrew Doyle, chief executive for Crown Mortgage Management, said:
“Today’s announcement from the Chancellor to advance £1 billion in loans to unblock large housing developments for new homes in Manchester, Leeds and across the country is aimed at stimulating housebuilding given that shortgage of supply is a major problem and this is certainly a step in the right direction. Furthermore, he has pledged to expand right-to-buy and increase the housing revenue account cap by £300m to allow councils to borrow more to build new homes.
“However, the recent ‘ stop, start, stop, start’ tactics from the Government has been confusing. The Funding for Lending Scheme was introduced to stimulate the housing market and now has switched focus to small businesses. You can’t just stimulate the market and then drop it. Long-term incentives on the supply side is what’s needed to encourage more housebuilding so demand can be met and will ensure the UK continues to see signs of recovery in the mortgage market.”
Richard Sexton, director of e.surv chartered surveyors, commented:
“House building needs to be radically ramped up if we are to address the critical shortage in supply in the housing market. The Chancellor has now offered a partial answer to this problem – a further £1 billion to unblock housing development. It has taken a long time but finally the message seems to have sunk in that house building is the only real way to keep a lid on rising prices, and ensure that first-time buyers can afford to get onto the first rung of the ladder, without the need to take out excessively large loans.
“But by failing to reduce stamp duty, as was speculated may occur, the Chancellor may have missed a second trick. Cutting the duty could have helped alleviate the monumental task of saving for a deposit, and encouraged more movement within the market. It would have helped first-time buyers get a hold on the housing ladder, particularly in the capital, where high house prices mean they often have to add stamp duty to the buying-a-home bill. Together these two large changes could have considerably impacted the fortunes of first-time buyers, but Mr Osborne only chose to go halfway.”
David Brown, commercial director of LSL Property Services, comments:
“One thing is not politically contentious today – more homeowners will require more homes. Building levels have collapsed for half a decade, leaving an output gap in the construction industry that amounts to half a million homes. On top of that lost ground, we need to build at least another million homes by 2020 – just to keep up with the rate of new households.
“In the meantime, the rental market is absorbing the pressure. Rents are now rising below inflation thanks to significant investment from landlords and a rejuvenation of buy to let lending. Hopefully the absence of new support for the rental market today means the Treasury has fresh ideas in mind to support landlords in next year’s Budget. But silence for the one-in-five who live in private rented accommodation cannot last forever.
“Extra funds to unblock overall supply are welcome. But those funds will need to do wonders. It’s true that building levels are recovering – but we need to do far more next year, in 2015 and beyond.”
