Home ownership

Allan Wilén, economics director at the Construction Products Association, said: "The deputy prime minister’s commitment to tackling the lack of affordable housing is clear and the proposed use of subsidised loans to help first time buyers climb on to the housing ladder may provide initial help to those offered them.

"On their own, however, the longer term impact of such loans would be to raise housing demand, push up house prices and increase the affordability problems for future house purchasers.

"Any such measures must be part of a wider housing strategy, including urgently needed reform of the planning system to free up the supply of housing land. It has been the inability of the planning system to provide sufficient development land to meet the growth in household numbers that has been the key factor behind the lack of affordable private sector housing. 

"Against this background, the government’s efforts to release redundant NHS sites is a welcome step. The re-use of these sites, whether for social housing or as a stepping-stone between rented accommodation and home-ownership, should raise overall housing supply. 

"The deputy prime minister’s comments regarding the rise in the cost of building a new house also raise a number of interesting issues. Overall the price of new house construction has outpaced general inflation by three to four times over the last ten years.

"The rise in the price of such work has been largely driven by sharply higher labour costs, which rose 68 per cent between 1993 and 2003. The price of construction materials rose 27 per cent over the period, slightly less than RPI inflation although more than the 18 per cent increase in the new CPI measure of inflation.

"In addition government policy has added directly to the price of new housing. New building regulations have raised the specification of new housing, for example requiring the installation of more and higher value construction products such as increased insulation and double glazed units. Whilst this has improved quality, it has also added to price. The remediation and site preparation costs involved in the greater re-use of contaminated and brownfield sites similarly add to typical construction costs.

"Despite these cost pressures, the price of constructing a new house has risen at only half the pace of house price inflation. This gap underlines the need to address, as a priority, planning restrictions on the supply of housing land if there is to be a long term improvement in affordability."

Stakeholder Response: Council of Mortgage Lenders

Bernard Clarke of the CML said: "We have been working with government on ways in which lenders can contribute to the spread of home-ownership through shared equity and are keen to explore this further.

"Currently, the government's low-cost home-ownership programmes are relatively small and fragmented.  In 2004/05, for example, the projected provision for Homebuy is only around 2,500 units.  More will be provided under the Key Worker Living initiative, but this is a short-term measure and only available to certain types of worker in certain parts of the country.

"Although 13.5 per cent of new households in 2004 could not afford to buy a home outright, they could have been able to do so if they had been offered a combination of an interest-bearing equity loan and a mortgage.  A 25 per cent equity loan and 75 per cent mortgages would have enabled nearly 28,000 more households to enter the market.

"Equity loans might be provided by mortgage lenders but the government would have to assist with the development of this market.  Discussions with the government are continuing."