Wall of evidence on housing bubble fears

Fears that the Help to Buy scheme will create a housing bubble have been underlined by a shortage of labour and supplies on construction sites as housebuilders struggle to meet new demand.

The controversial £12 billion Help to Buy scheme, offering state-backed mortgages to borrowers, was extended by David Cameron on 8 October. The prime minister said the scheme would “make the dream of home ownership a reality”, allowing people to buy a new or existing house worth up to £600,000 with a 5 per cent deposit.

The scheme proved instantly popular when it was launched in April to buyers of new-build housing only. A surge in interest fuelled a rise in house prices across the country, according to the Royal Institution of Chartered Surveyors. Its monthly report states that prices are up for the fifth consecutive month in September as buyers return to the market in their biggest numbers for four years.

Unsustainable debt

Critics however claim that the Help to Buy scheme risks creating another housing price bubble, as it encourages new homeowners to take on unsustainable levels of debt.

Senior politicians including business secretary Vince Cable have warned of the potential risk of the scheme. Despite these concerns, the government brought its launch forward by three months, with Treasury ministers saying annual reviews will be made to make sure the scheme is operating safely.

As the scheme was launched, the chairman of the Commons Treasury Select Committee, Andrew Tyrie, warned that any mistakes in the scheme “could distort the housing market or carry threats to financial stability”.

Now critics’ concerns have been fuelled further as housebuilders reported that they are struggling to keep up with the sudden spike in demand.

Chain reaction

While the response of potential buyers to the government’s announcement was almost overnight, housebuilders are reporting that restarting production will be a much slower process.

The scheme, they say, has started a chain reaction that has pushed up prices and caused delays in supplying materials as manufacturers attempt to respond after five years of underproduction.

“We were having brick deliveries fulfilled in seven to ten days at the start of the year. Supply wasn’t a problem,” said a spokesperson for housebuilder Taylor Wimpey, adding that one of its sites is now having to wait up to 20 weeks for bricks to be delivered.

“Demand has increased as a result of improved consumer confidence, which in turn is resulting in an increase in output across our sites. Although on the face of it this is good news, the industry is already starting to experience labour and material shortages,” said Steve Morgan, chairman of North West-based Redrow Homes.

“As a consequence, despite output increasing at a reasonable pace, reaching the levels the country requires will not be achieved overnight.”
The House Builders Federation estimates that Britain needs 220,000 new homes each year to meet demand, and says that while the number of new homes being built is slowly increasing it still falls below half of what is needed.

‘Land banking’

Morgan claimed red tape is also slowing the company down. “Despite government initiatives to streamline the planning process, the system in practice remains a bureaucratic mess,” he said.

“It is still failing to deliver implementable planning permissions at anything like the rate the country requires and the house building industry needs to expand.”
He said many of its sites are still subject to further clearance despite being listed as approved.

But critics accuse housebuilders of “land banking” – slowing down the development of sites to ensure prices remain high.

“Last year, Local Government Association figures showed that there were over 400,000 plots with planning permission in England,” said a spokeswoman for the Campaign to Protect Rural England (CPRE).

CPRE argues that bureaucracy is not a problem for developers and that, if anything, the “rush to cut red tape” will go too far, further threatening green spaces.

“Developers are sitting on undeveloped plots of land with planning permission, waiting for prices to rise,” she said.

“In the current economic climate this has become a significant issue, which means that although local authorities are granting planning permission, homes are not being built.”