By Edward Chammas, Volunteer
It is increasingly clear that there is a housing crisis in Britain. The ONS has stated that the averagely-priced home in England and Wales would cost a full-time worker 7.8 times their salary. This is particularly problematic for young adults trying to buy their first property.
So why is it that this is happening? And what are the possible solutions?
According to Nationwide, house prices are 68 per cent higher than in 2000, when adjusted for inflation. This steep increase in price clearly points to excess demand in the housing market, which has meant landlords have been able to capitalise by raising prices, at the expense of would-be homeowners. Simple supply and demand.
Therefore, it would seem the solution is fairly intuitive, even if one has not studied economics. If the government started building more houses, this would lead to an increase in supply, and hence the price of the average house would decrease. Landlords would not be able to demand the same exorbitant prices as they have been able to, as supply would slowly rise to match the high demand.
This is what the government should do. Many people can see that this is the obvious solution.
But what if we contrast this with what the government has actually done. Most notably, the coalition government introduced the Help to Buy Scheme in 2013, with the aim of financially assisting households to buy a home.
However, there has been sharp criticism of the scheme, and it has clearly not been a resounding success. Firstly, it is a demand-side answer to what is understood as a supply-side problem. According to the National Audit Office’s report, the Help to Buy program does not have a target for the number of new homes to be built. The main root of the problem - low supply of property - has not been addressed.
Additionally, the report states that over a 10 year period, the scheme is forecasted to eat into £29 billion of taxpayers’ money. Taxpayers should be incensed to hear that three-fifths of buyers who have been helped could have purchased a property without the aid of the project. It is unambiguously obvious that a lot people did not need this help, and that huge amounts of taxpayers’ money has been wasted providing it.
Moreover, four per cent of households who used the scheme by the end of 2018 had a household income over £100,000. This further compounds the point that not all beneficiaries were in need of assistance. The report also reveals that “5 of the 6 developers in England that build most properties account for over half of all loans through the scheme”. The financial aid is clearly tilted towards bigger business, which distorts the competitive nature of free markets.
The scheme is corporatist in nature, and does not have a positive impact in reducing house prices for the average taxpayer. The government is already spending substantial amounts of money on subsiding housing: £21.7 billion was spent on housing benefit in 2017-18, for instance. This unfortunately often functions as a subsidy to landlords.
The solution seems more obvious than ever. Help to Buy could have worked if there was a lack of demand for housing, however this is not the case. The opposite is true. It should be abolished, in order to save money and to end a subsidy to housebuilders. Instead, some of those funds could then be redirected to building large amounts of houses, and bringing property prices down. That would be the logical supply side response to the housing crisis in Britain.