Of course the Budget didn’t give us as much as we wanted. But, says Jon Neale, it’s questionable whether even more cash would help housebuilders. What we want more of is fresh thinking
The housebuilding sector has been crying out for government assistance. Great things were expected of Alistair Darling’s Budget, with £1bn trailed as a possible sum. The actual figure of £600m produced some dismay, but it is undeniably a step in the right direction.
Those demanding a larger bailout need to consider what further intervention would achieve and whether it could be justified to the already hard-pressed taxpayer. Take HomeBuy Direct, the reportedly oversubscribed package that enables first-time buyers to get a foot on the ladder by providing a 30% equity loan split between the developer and the government. It has been extended – but not to the extent many had hoped.
The £80m pledged will help about 5,000 more buyers, as each package costs the Exchequer £20,000. To put that figure into perspective, 9,400 first-time buyers managed to get mortgages agreed in February alone. This was about 8,000 lower than in February 2008. If the government were to use HomeBuy Direct to restore last year’s transaction levels, taxpayers would need to hand over about £160m a month. That’s almost £2bn a year, or more than £100 for each UK taxpayer. Is it possible to justify this subsidy to help only 100,000 first-time buyers, particularly when other groups in greater need are on the
Social housing waiting list?
It is also unclear whether intervention on this scale would really help first-time buyers. Arguably, any subsidy keeps prices above the level they would fall to if the market were left alone. Help on a wider scale could make housing more unaffordable for everyone else.
The £400m earmarked to help stalled schemes is, as the higher amount suggests, a far more effective use of public money. Schemes where the sums do not quite add up will be made viable either by funding infrastructure or by taking equity stakes. This will help to prevent housing delivery numbers from falling further while retaining capacity in the construction industry.
Those demanding a bailout larger than £600m need to consider what further intervention would achieve – and whether it could be justified to the hard-pressed taxpayer
Again, though, the scope is not enormous. Only 10 to 15 large schemes could really be helped by this money.
This year, work will start on 180,000 fewer homes than the government believes are needed to keep up with demand. Next year, the shortfall will be less pronounced, but will still probably be a lot more than 100,000. To bridge this gap with public funds alone would cost at least 10 times the amount pledged – probably well over £4bn.
Even then, there are question marks over whether any of this will help the housebuilders. The big six volume operators have total debt in excess of £4bn, as well as total land purchase commitments amounting to a further £2bn or so. They will find it difficult to raise sufficient cash to begin developing again on a large scale, at least until the economic outlook improves. As they own most of the land, the danger is that they become “zombies”, essentially, indebted landbanks that investors and shareholders keep on life support because of the long-term potential of the assets they hold.
The Budget is a good start, but the next step needs to involve fresh thinking over how to produce a more diverse, innovative and productive industry.
Jon Neale is head of development research at Knight Frank