A budget to support homeowners, not home ownership

Daniel Bentley, 9 July 2015

David Cameron and George Osborne kicked off the pre-Budget weekend with an article last Saturday promising to support home ownership. “Having your own place is an important stake in our economy,” they wrote in The Times. “It’s also one of the best expressions of the aspirational country we want to build, where hard work is rewarded. It’s also about social justice. We don’t want this to be a country where if you’re rich you can buy a home, but if you’re less well off you can’t.”

But the Budget when it came yesterday did little to tackle the long-term decline in home ownership. There was a welcome incursion into the tax advantages enjoyed by buy-to-let landlords, who are muscling out first-time buyers and helping to force up prices; but the Chancellor could have done a lot more good by abolishing their mortgage interest tax relief altogether, rather than limiting it to the basic rate of income tax. This is no longer available to owner-occupiers, after all, and gives landlords “a huge advantage in the market” (Osborne’s words) that they are coming to colonise to the detriment of ordinary families.

What was really missing though, predictable as it may seem, was any major initiative to increase housebuilding to end house price inflation and promote real affordability. This is what those aspiring to home ownership need: more houses at lower prices, not the gimmicks that have been periodically wheeled out giving a relatively small number of people a leg up onto a ladder which is rapidly disappearing from view for most twenty-somethings (and now thirty-somethings too). From this perspective, yesterday’s Budget actually made matters worse by imposing a one per cent cut on social housing rents which will only reduce investment in new homes. David Orr of the National Housing Federation predicts at least 27,000 fewer housing association homes will be built as a result. The independent Office for Budget Responsibility forecasts 14,000 fewer affordable homes by 2020. And what of house prices? The OBR expects them to have risen by another 34.1 per cent – just over a third – compared with now. This is what happens when you don’t build enough homes.

Interestingly, Osborne’s aim in forcing housing associations to cut social rents is to reduce the cost of housing benefit. Yet housing benefit is being driven up by the spiralling rent demands of private landlords too. In fact, the private rented sector’s share of the housing benefit bill has risen from 25 per cent to about 40 per cent over the last decade (described here, pp.14-15). This was one of the reasons that led Civitas to recommend imposing in-tenancy limits on private sector rent rises recently. Osborne has applied the same logic, but rather than taking it up with private landlords he has targeted housing associations instead, despite the negative impact that will have on the supply of affordable homes.

All of this, combined with inheritance tax reform which will mostly benefit those who own £1 million houses, tends to suggest that Cameron and Osborne are more interested in those who are already homeowners rather than helping more people to join that dwindling club.

Daniel Bentley is the author of The Future of Private Renting: Shaping a fairer market for tenants and taxpayers