20. The Government's approach to housing is based on a fundamental misconception - that the housing market is mainly driven by the supply of new housing. The plans seem to regard the housing market as a system in which bucket of new housing poured in at the top of the tank leads to cupfuls of water for first time buyers at the tap.
21. The housing market depends far more on demand factors such as perceptions of value, financing availability and the formation of new households. The easier availability of finance with a British version of the sub-prime mortgage expansion and reluctance of sellers to lose capital gains are likely to have been the main forces in the market.
22. The Government is also in error in assuming that "nimby" factors are the only or the sole reasons for the lack of building in the South East. On an objective basis, the lack of infrastructure on roads and local amenities together with the green belt limits have been the main reasons for the slow progress of development. The development difficulties have in fact been just as great in areas such as Thamesbank where Government has had most control.
23. The proposals announced in the Housing Green Paper also involve a spending increase of £3.3 billion in the next Spending Review period. The Secretary of State for Local Government, Yvette Cooper, has said that there will be extra spending on top which will be funded from efficiencies in housing associations spending. That comprises a £3 billion increase in spending on affordable housing compared to the previous Spending Review period; and a new £300 Community Infrastructure Fund.17
24. Any programme to help first time buyers should start from the aims and preferences of the possible buyers themselves. There is no great affordability problem for first time buyers even in many areas of the South East for example along the South coast from Shoreham to Havant. In many other areas of the North and Midlands, house prices are also much lower. If first time buyers were distributed evenly across the UK housing would be affordable in a great many local markets. First-time buyers in graduate level occupations want to go to places where there are jobs and social amenities. They would aim to go to certain magnet cities including London, Bristol and Brighton. It is the lack of supply of affordable housing in these specific areas which is the central problem for first-time buyers. In addition there is more diffused problem for people with lower incomes including public sector workers such as nurses and teachers.
25. Rather than the general approach of building new houses, a targeted approach - which would involve measures on the demand as much as on the supply side of the market - is preferable.
26. On the supply side, the key is to identify markets in which there is an affordability problem including such areas as London, Brighton and Bristol. In such areas supply incentives should concentrate on incentives for conversions and use of industrial and public sector sites for new building. There are also possible options for developing smaller scale properties. Any supply subsidies should be targeted specifically on such types of housing. Social housing and shared ownership schemes can also make a useful contribution but only if they are in the areas where first-time buyers want to live.
27. In demand, first-time buyers would be hugely helped by the abolition of stamp duty. In the longer term they would be most helped by a steady move to a low tax economy. The new concern for first-time buyers follows on a budget which steadily increased the combined tax and insurance take from single people and couples without children. The problems for first-time buyers reflect in part of the longer term effects of raising the levels of tax and spend on the IPOD generation.18
28. The Government's general approach shows a dangerous reversion to a "big government approach". The lessons of previous house building surges by government are that they have often produced housing of poor quality and in the wrong places.
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17 Department of Communities and Local Government (2007), Homes for the future: more affordable, more sustainable. Sections III and IV.
18 See Bosanquet, N. et al (2005), Class of 2005: the IPOD generation, Reform, and Bosanquet, N. et al. (2006), Class of 2007: a lifebelt for the IPOD generation, Reform.