“50-year mortgages won’t fix Britain’s broken housing market” is the headline. This is in response to the Government’s latest wheeze to pretend they are doing something about the Housing Market.
The author of the article rightly pours scorn on
this idea. It is one of a series of gimmicks from this and previous
governments, all of which just push prices up higher.
So far so good, but then comes the utterly conventional,
but wildly wrong explanation:
“The problem
with the British housing market is that there isn’t enough stock relative to
the population, and where there is stock available, it’s in the wrong place.”
It’s all down to supply of new housing being deliberately limited says
the author Sam Ashworth-Hayes (former director of studies at the Henry Jackson
Society):
“British
politicians have created an almighty mess. Restricting housing supply caused
prices to rise, and meant people borrowed increasingly large sums of money to
buy homes.”
(The author seems deeply incurious as to where the ‘increasingly
large sums of money to buy homes’ comes from!)
Governments
are deliberately restricting supply of new builds? That’s nonsense!
If the rate
of housebuilding was in some fairly-tale land doubled, tripled or quadrupled
would that bring down prices? No, because the 80-90% of the houses for sale are
already there!
And the
conclusion:
“And until a
politician is brave enough to grab the nettle and risk a drop in property
prices, we will be stuck with a housing market that ruins the lives of young
people before – eventually – turning them into lobbyists for its maintenance.”
The author
thinks that the ‘nettle’ it is the power of the Nimbys that must be ‘grabbed’,
but the real force that is pushing up house prices is the ability of the
financial system to create unlimited amounts of mortgage funds.
‘Rein in the
power of the banks!’ Now that would be a brave new slogan for the
freedom-loving Henry Jackson Society!
- - - - - - -
50-year
mortgages won’t fix Britain’s broken housing market
2 July 2022, 8:30am
2
July 2022, 8:30am
Downing Street has come up with another cunning plan to fix the housing
crisis: 50-year mortgages, passed from parent to child. No longer will your
ability to afford a home be dependent on your earnings. Once the scheme is in
place, you will be able to borrow against the incomes of your future children,
in a heart-warming recreation of the age-old tradition of indentured labour.
The reasoning goes something like this: young people can’t afford to buy
homes. Not only can they not afford to buy homes, they can’t afford to save for
deposits. While accommodation has grown ever more cramped – with space per
person dropping a quarter between
1996 and 2012 – rents have continued to
eat into incomes. Record numbers have are stuck living
with their parents, unable to start their lives as adults, let alone start
families.
In order to help them, the government is going to make it easier to borrow money. This could mean
smaller deposit requirements, or it could mean very long repayment periods. The
latter would be enabled through mortgages that parents could pass onto their
children, replicating policies introduced in Japan in the 1980s. It’s a simple
idea, and one with no chance of working.
Mortgages let you borrow against your future earnings. The longer the
period of earnings, the more you can borrow. At some point, it is somewhat
optimistically assumed that you will retire, stop working, and stop earning.
This caps the amount a lender will offer you. Making mortgages transferable
allows you to borrow against the earnings of your children: you make payments
until you die, and they inherit both the house and the remaining debt.
The
main effect of 50-year mortgages will be to drive prices higher
Longer mortgages won’t do a thing to help young people onto the housing
ladder. As with Help to Buy, Lifetime ISAs, and every other policy the
government has trotted out over the past decade, No. 10 seems to think the
fundamental problem with the British housing market is one of demand: people
just aren’t spending enough.
This is wrong. The problem with the British housing market is that there
isn’t enough stock relative to the population, and where there is stock
available, it’s in the wrong place. It’s like a game of musical chairs. You
aren’t going to get five people onto three seats, no matter how much financial
engineering you engage in.
This lack of supply in the places people actually want to live is why
buildings which used to be family homes have been turned into unsatisfactory
house shares. It’s also why prices will continue to rise until people are
actually permitted to build homes.
From this perspective, the main effect of 50-year mortgages will be to
drive prices higher. Red tape in the planning system stops supply responding to
demand. Increasing people’s ability to spend money just results in bidding wars
over the properties already available.
It’s not even particularly true that longer mortgages are more
affordable. Monthly repayments for a given sum work out as practically
identical whether you stretch them over 29 years – the current average duration
– or 50. Borrowing a larger amount would actually drive them higher. If 50-year
mortgages become the standard, people will end up with more debt, the headache
of making mortgage repayments in retirement, and they’ll end up in the house
they would have bought anyway.
What’s deeply frustrating is that the government almost certainly knows
it won’t work. The reason Downing Street keeps tinkering with demand is very
simple: it thinks doing anything to fix supply will lose it the next election.
British politicians have created an almighty mess. Restricting housing
supply caused prices to rise, and meant people borrowed increasingly large sums
of money to buy homes. As prices continued to rise, each new group of
homeowners was increasingly locked into the system: with their net worth tied
up in a single asset. A market correction would see their savings wiped out and
trap them in the misery of negative equity.
Combine this
with Britain’s ageing population, and you have a perfectly self-perpetuating
form of political dysfunction. Any attempt to liberalise planning mobilises masses of Nimby voters
concerned about falling property values. And until a politician is brave enough
to grab the nettle and risk a drop in property prices, we will be stuck with a
housing market that ruins the lives of young people before – eventually –
turning them into lobbyists for its maintenance.
WRITTEN BYSam Ashworth-Hayes
Sam Ashworth-Hayes is a former director of studies at the Henry Jackson
Society.
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