A range of ideas on how to help people become homeowners
The most important barrier to fixing our broken housing market, and by extension increasing home ownership, is the absence of a guaranteed buyer in the system. ResPublica’s National Housing Fund would introduce a guaranteed buyer to the market, which would increase the pace and scale of output.
The Fund would use Government’s ability to borrow money at historically low rates to invest £10 billion annually over the next 10 years, delivering between 40,000 and 75,000 additional new homes per annum. The Government would act as a guaranteed buyer in the market, working with housing associations and SME builders to deliver homes.
Not only would the Fund deliver more houses for home ownership, but it would reduce the dominance of big builders and increase the capacity of SMEs through minimising risk and creating certainty of purchase. This would, in turn, open smaller plots of land for development and increase the pace of delivery.
Homes built through the Fund would be for long term rent (five or ten years) and would range from market rents to subsidised rents. The Fund would support home ownership by offering homes to purchase through a Rent-to-Buy scheme, meaning that renters would be able to purchase the property they were renting after 5 years. To create a pathway for renters to buy the homes they live in, prices would be fixed at the move-in date or part of a tenants rent could be saved towards a deposit. This would create an affordable option for home ownership, while providing stable and long-term rental options for those looking to buy.
The housing crisis continues to be one of our top domestic political issues. The main focus of solving this crisis however, has largely been concentrated on how to help first time buyers, at the cost of ignoring the other end of the chain and the large number of older people who are struggling to downsize.
The UK’s shortage of housing is most pronounced at the top of the ladder. Thousands of older people seeking to downsize into suitable or specialist retirement property are trapped in large family homes.
Addressing this shortage would in turn help those lower down the chain. Analysis by Demos showed that if just half of those interested in downsizing were able to do so, 4 million older people would be able to move, freeing up 3.5 million homes. Over 2 million of these would be three bedroom properties. The whole housing chain would benefit from a domino effect of moves, helping those lowest in the chain.
Current planning charges render retirement developments inherently non competitive against general needs housing and retail developments. We must address these barriers to retirement housing development. Our report last year Unlocking the Market called for an exemption to 106 contributions and CIL for retirement developments. We also recommended an exemption of stamp duty for older people with lower-value homes, to encourage those thinking of making the move.
By improving the supply of older people’s housing, we can meet demand among older people and in turn, for families looking for larger homes, and first time buyers.
As IPPR’s Commission on Economic Justice pointed out in its plan for a new UK economy, home ownership has fallen substantially since the financial crash, not least amongst the younger generations – in 1990 half of those aged between 25 and 34 owned their own home but by 2017 this had fallen to one in four.
A major part of the reason why new homes are expensive and home ownership unaffordable is that landowners make significant gains when residential planning permission is granted. The average price of a piece of agricultural land in England is £21,000 per hectare. But for land with planning permission to build homes it is over £6 million per hectare. This huge ‘planning gain’ is created by the state, in the granting of planning permission; but it accrues almost entirely to the landowner as an unearned windfall.
To prevent this, the government should change the law to prevent landowners from benefiting from the unearned windfall gains that accrue to them when they are awarded planning permission. IPPR has argued that the government should reform compulsory purchase laws to allow local authorities and public bodies to buy land at a fair value that enables the delivery of high-quality development. This is the approach taken in a number of countries including Germany, the Netherlands, and in the UK prior to 1961.
By making land more affordable, the government could take a big step towards delivering more affordable homes to rent and to buy.
The UK has the fourth lowest home-ownership rate in the EU28; the housing crisis is not one just of supply, but distribution. Finding the money for a deposit is often the challenge: evidence shows that many renters have higher incomes than owners.
The CPS recently published ‘From Rent to Own’, recommending offering a rebate on Capital Gains Tax bills for landlords selling to tenants. The rebate would be split one third to the landlord as an incentive to sell, two-thirds being centrally redistributed to tenants whose landlords have taken part to fund a 6.66% deposit, leaving only 3.33% for them to find. CPS analysis confirms that there is enough tax liability in the market to support tenants into ownership.
The implication for a tenant purchasing at the average price in the UK is that they need only find £7,000, and would then receive £14,000 from the government to have the full £21,000 needed for a 10% deposit. The scheme would operate for only one year to encourage take-up, and be offered first to tenants sitting at the date of announcement. There would be an online exchange service for tenants to swap or find more suitable properties.
The scheme would be at least revenue neutral as it would involve relieving tax on transactions that would otherwise largely not occur – landlords with large CGT liabilities seldom sell.
The policy has the potential to cause a major shift: if only one in ten landlords participated, over one million new homeowners would be created.