The number being helped by Help to Buy is at a record high. That’s not a good thing

Help to Buy, Bristol, 2013. Image: Getty.

James Brokenshire the secretary of state for the Ministry of Housing, Communities and Local Government (MHCLG) has been having a busy week. On Monday, the department published its rough sleeping strategy, while Tuesday saw the release of the long awaited social housing green paper.

Neither has filled commentators or the housing sector with much confidence – not least because they offer no new support for genuinely affordable homes. This is a problem because, well, there aren’t enough and building more will cost money. 

Since 2010, affordable housing funding has taken a significant hit. Financial support for building social rented homes, where rents are linked to local earnings, has been cut in favour of rents set at 80 per cent of market rents. As a result the supply of new homes at social rent has dwindled dramaticallyIPPR research has shown that, across the country, the so-called affordable rents which have replaced them are simply too expensive for many households on low incomes.

This lack of a support stands in marked contrast to government’s approach to homeownership, as figures released today on sales through the Help to Buy show. Help to Buy loans, in which government lends a household 20 per cent of the value of a new build home (40 per cent in London), are at a record high. To date, around 170,000 homes have been sold through the scheme.

But the Help to Buy policy has two key problems. Firstly, far from supporting those who otherwise couldn’t afford to buy, the scheme is instead assisting households who would be able to buy at some point without support; lower income households continue to be priced out. The government’s own analysis shows that many of those buying through the scheme would have been able to buy at some point in the future without the scheme.

At the same time, the data released today shows that more than a third of those who have made use of Help to Buy to date have household incomes of £50,000 or higher. Around 1 in 10 of those who have bought through the scheme have a household income of over £80,000.

Secondly, far from improving affordability, Help to Buy worsens it. Research by the housing charity Shelter has shown that, through boosting demand for scarce housing, Help to Buy has inflated house prices. 


The main beneficiaries of this are the developers who have factored the scheme into house prices and as a result have seen a significant increase in their profits. Take, for example, the excessive bonus paid to the CEO of Persimmon Homes earlier this year of £75m (originally £100m), which stoked such shareholder and public fury: that was linked to a surge in profits driven by the Help to Buy scheme.

Both of these critiques demonstrate that government is currently not putting its balance sheet to best use. To date, Government has leant out £8.9bn through the Help to Buy. In 2017 alone, the money could have been used by councils to build somewhere in the region of 22,000 homes for social rent, over 400 times the amount actually built in 2016-17.

Letting councils borrow to build affordable housing would make significant steps towards delivering the 145,000 affordable homes which are needed each year, tackling poor housing conditions, over-crowding and poverty. At the same time, it would generate a return for councils, which could in turn be used to invest in more affordable homes and improve existing ones.

Yet, our absurd national accounting rules currently prevent this from happening. Help to Buy lending is not counted towards the deficit. This is because, asGeorge Osborne boasted when launching it, the Help to Buy scheme is a financial transaction, and therefore the taxpayer would be “making an investment and getting a return”.

By contrast, under rules imposed by the Conservative Government of 2010-15, councils are subject to a debt cap on what is called the housing revenue account. This prevents them from borrowing prudently against future rental streams to build council homes. This is despite cries from the Local Government Association that councils want to get building in order to tackle the housing crisis.

On a more positive note, the social housing green paper indicates that the government is starting to budge on this. It has already lifted the borrowing cap slightly in areas with pressure on affordability and is using these schemes to test the possibility of going further. 

This is welcome, but as the social green paper shows warm rhetoric on its own is not enough. Government should commit to changing the borrowing rules, lifting the local authority debt cap and phasing out help to buy.

Darren Baxter is a Research Fellow at IPPR he tweets @DarrenBaxter.

 
 
 
 

What's actually in the UK government’s bailout package for Transport for London?

Wood Green Underground station, north London. Image: Getty.

On 14 May, hours before London’s transport authority ran out of money, the British government agreed to a financial rescue package. Many details of that bailout – its size, the fact it was roughly two-thirds cash and one-third loan, many conditions attached – have been known about for weeks. 

But the information was filtered through spokespeople, because the exact terms of the deal had not been published. This was clearly a source of frustration for London’s mayor Sadiq Khan, who stood to take the political heat for some of the ensuing cuts (to free travel for the old or young, say), but had no way of backing up his contention that the British government made him do it.

That changed Tuesday when Transport for London published this month's board papers, which include a copy of the letter in which transport secretary Grant Shapps sets out the exact terms of the bailout deal. You can read the whole thing here, if you’re so minded, but here are the three big things revealed in the new disclosure.

Firstly, there’s some flexibility in the size of the deal. The bailout was reported to be worth £1.6 billion, significantly less than the £1.9 billion that TfL wanted. In his letter, Shapps spells it out: “To the extent that the actual funding shortfall is greater or lesser than £1.6bn then the amount of Extraordinary Grant and TfL borrowing will increase pro rata, up to a maximum of £1.9bn in aggregate or reduce pro rata accordingly”. 

To put that in English, London’s transport network will not be grinding to a halt because the government didn’t believe TfL about how much money it would need. Up to a point, the money will be available without further negotiations.

The second big takeaway from these board papers is that negotiations will be going on anyway. This bail out is meant to keep TfL rolling until 17 October; but because the agency gets around three-quarters of its revenues from fares, and because the pandemic means fares are likely to be depressed for the foreseeable future, it’s not clear what is meant to happen after that. Social distancing, the board papers note, means that the network will only be able to handle 13 to 20% of normal passenger numbers, even when every service is running.


Shapps’ letter doesn’t answer this question, but it does at least give a sense of when an answer may be forthcoming. It promises “an immediate and broad ranging government-led review of TfL’s future financial position and future financial structure”, which will publish detailed recommendations by the end of August. That will take in fares, operating efficiencies, capital expenditure, “the current fiscal devolution arrangements” – basically, everything. 

The third thing we leaned from that letter is that, to the first approximation, every change to London’s transport policy that is now being rushed through was an explicit condition of this deal. Segregated cycle lanes, pavement extensions and road closures? All in there. So are the suspension of free travel for people under 18, or free peak-hours travel for those over 60. So are increases in the level of the congestion charge.

Many of these changes may be unpopular, but we now know they are not being embraced by London’s mayor entirely on their own merit: They’re being pushed by the Department of Transport as a condition of receiving the bailout. No wonder Khan was miffed that the latter hadn’t been published.

Jonn Elledge was founding editor of CityMetric. He is on Twitter as @jonnelledge and on Facebook as JonnElledgeWrites.