Spending Review 2015: Tax raid on buy-to-let investors to pay for doubling of the budget for affordable housing

george osborne

Chancellor George Osborne has made a doubling of the budget for affordable housing - paid for by a tax raid on buy-to-let investors - the centrepiece of his Spending Review for the parliament.

In what he described as a programme “to rebuild Britain”, Osborne said 400,000 subsidised homes would be built across the course of the parliament, the vast majority of which would be for sale rather than rent.

He said the programme, costing £6.9bn, would deliver on the government’s promise of building 200,000 starter homes at a 20% market rate discount, while he also announced a ramping up of the construction of shared ownership homes, with a new Help to Buy shared ownership programme providing 135,000 new homes.

The announcement came within a Spending Review in which Osborne acted to prioritise infrastructure spending and capital spending on schools, despite often savage cuts in day-to-day spend for departments.

Osborne said his housing programme would see investment double from £1bn per annum today to £2bn per annum in 2018-19.

However, the overall capital spending budget for the communities department, which funds affordable housing as well as regeneration and support for small builders, does not rise significantly over the parliament according to the Treasury papers accompanying the Spending Review, implying cuts elsewhere in its programmes. The department was not able to answer where these cuts would be made.

However, in addition Osborne said the housing programme will see:

  • 10,000 rent-to-buy homes
  • The creation of a new Help to Buy equity loan scheme for London, offering buyers a loan worth up to of the value of a house
  • £310m to support the development of a Garden City at Ebbsfleet
  • Further planning reform.

The figures provided imply that as few as 50,000 homes for affordable rent will be built over the next five years, a sharp decline on the previous five years, with those funded likely to be replacements for homes sold under the Right to Buy policy or already legally committed to by the government.

Nevertheless, housing associations - which had been braced for a further cut to the rents they can charge to tenants which didn’t emerge - welcomed the announcement. David Orr, chief executive at the National Housing Federation, said: “This historic announcement provides the conditions for us to deliver thousands more homes for people at every level of the housing market.”

The announcements were also welcomed by housebuilders, with Home Building Federation executive chair Stewart Baseley saying the announcement could lead to “thousands of new jobs and apprenticeships” in the sector.

The chancellor announced an additional 3% charge for people buying homes for the buy-to-let market, with large firms excluded from the levy if they buy more than 15 homes at a time, which will raise £3.8bn over the course of the

Some groups expressed concerns over the focus on homes for sale to the exclusion of homes for rent, and the lack of skilled tradespeople available to meet the demand for more housing. Martin Bellinger, chief operating officer at private rented provider Essential Living, said grants for shared ownership were just “tinkering
around the edges”.

“Housebuilders aren’t about to double their output and the hundreds of smaller developers we once had were largely killed off by the last recession. Starter Homes are well intentioned, but even with a 20% discount, buying a house for many still won’t be affordable.”