The issue of affordability in the UK housing market is something which has been grabbing the headlines for some months now. Even though the UK economy is show signs of a slowdown there is still significant demand for UK property. As a consequence, with house prices rising faster than wage inflation, the issue of affordability is impacting the thoughts of many would-be first-time buyers. So, how can politicians tackle the affordability issue before we reach a point of no return?
Is financial assistance the answer?
As you will no doubt have seen over the last couple of years there have been a number of high profile financial assistance programs launched by the UK government. While these financial programs grab the headlines and have allowed many people to climb aboard the UK property ladder, are they the long-term answer?
Financial assistance is very often a vote winner as we move towards elections and important political events. However, short-term assistance for those borderline first-time buyers also pushes prices higher out of reach of those perhaps not eligible for assistance.
The idea of rental controls is something which has been floated on a number of occasions in recent times. By introducing rental controls this would reduce growth in rents in the private sector and would in theory make investment in property less attractive to those looking for a mixture of income and capital growth. However, rental controls go against the concept of a free market which has led to the creation of the UK property market we know today.
Rental controls, or indeed any other draconian fiscal controls, within the UK property market do not go down well with investors.
Shared ownership is one of the more successful programs created to assist first-time buyers looking to climb onto the UK real estate ladder. In simple terms these agreements, often backed by housing associations, allow individuals to take an initial stake in their property with the option to increase this as their financial situation allows. However, the downside to this is the fact that the purchase of a larger percentage in their property will be based upon the future market value.
This is great for first-time buyers, with limited financial backing, looking at properties but again it does help to push UK property prices even higher.
Increased new build numbers
The UK government can tweak mortgage conditions and offer short-term financial assistance to would-be first-time buyers but there is a need to increase the number of new builds in order to address the long-term issue of affordability. The simple fact is that the more houses available the less competition for individual properties which should help to avoid housing price bubbles in the future.
Estimates vary but the UK is probably 50,000 to 100,000 new build properties short per annum looking at the current figure of around 140,000 new homes. However, increased new build numbers would create other issues with labour shortages and significant upfront investment by development companies to name but two. So, what is the long term solution?