Earlier this month George Osbourne stood in parliament and delivered his 2015 spending review. While the budget had its ups and downs depending on your political perspective, there were a few announcements which will impact the property industry over the next year.
The Chancellor of the Exchequer finally confirmed that solving the housing crisis was a high priority, as he officially recognised the chronic shortage that we have in the UK. Research suggests that the problem is now so severe that young couples aren’t even planning to buy their own home because they believe they will never be able to afford one.
This same research revealed that the latest housing projections estimate that 220,000 new homes need to be built every year, until 2031, to match the expected household growth. With only 54% of the necessary houses being built, there is pressure on the rents and house prices throughout the UK. However, London and the South East are suffering the most from this because the majority of houses are needed there.
The Chancellor plans to solve this with a promise to build 400,000 new affordable homes through the private sector. Among these are the 200,000 starter homes exclusively dedicated to help first time buyers.
The plan is to build these homes by 2020 and the Chancellor will invest public funding into private companies to encourage them to meet deadlines. This move has only proven to be beneficial for the private sector. The Guardian reported that the combined stock market value of Taylor Wimpey, Barratt Developments and Persimmon has risen by approximately £750 million since the announcement.
With the promise of new homes Osbourne announced a new help-to-buy scheme which allows Londoners, with a 5% deposit, to take out an interest free loan worth up to 40% of the property’s price, providing it’s a new build.
However critics have commented that the review’s budget would not help ‘Generation Rent,’ those who are unable to step onto the property ladder because of high rents throughout London. An issue Osbourne didn’t comment on.
It would appear that house prices in London will not be seeing any decrease in the near future. The Office for Budget Responsibility, a body set up to provide an independent and authoritative analysis of the UK’s public finances, have projected that house prices will rise 5% year on year until 2020 (Section 2.6).
The prediction supports concerns that the London bubble may cause prices to exceed £1 million in the future. While the OBR prediction may not equate to such a drastic increase, it shows that London may continue to become increasingly inaccessible to the working class.
Now that the Conservative government has acknowledged the housing crisis, the industry could see some radical changes in the near future as plans are implemented. With starter homes for first time buyers starting at £250,000 outside of London and £450,000 within the capital, the debate about whether ‘starter’ should also mean affordable has begun.
This raises the ultimate question: How effective will these housing plans be?