First published on http://ozzyscorner.wordpress.com/

This week the Government announced a series of measures designed to boost the building of new houses. Sadly, but predictably, they completely fail to address the housing crisis facing millions of ordinary working people, especially the young.

One of the proposals is to reduce the number of affordable houses that local authorities often tab onto the planning permission of new housing projects. This will have the consequences of reducing the number of affordable homes built in the real house price hot spots, such as London.  Developers would love to not have to build properties that  are affordable, when instead they will be able to build more homes aimed at the richest in society. The clear profit motive will drive this. Expensive areas will become increasing devoid of anyone but the very wealthy.

A second proposal is to allow the building of house extensions, with little or no planning permission required. This has a number of problems. The people who have the type of property and the equity or finances to do this will not be young people or first-time buyers. The current constraints on mortgage criteria means that once again only the wealthy will have the means to pursue this option. Once their house is larger, its value will rise. The rise in prices will further increase the lack of affordability that is a real barrier to first-time buyers.

First-time buyers are critical. The housing ladder is like a food chain. Fresh buyers need to come into the market at the bottom to get the housing ladder moving. They buyers are seriously constrained by the tighter mortgage criteria commonly in place. How many young people can raise a sum, often need around £ 30,000, to get a deposit together?

Crucially, when are we going to ween ourselves off the idea buying a house is something that must be done, and they must rise in value – that being a good thing? This view has led an asset-bubble that has driven house prices way beyond increases in wages:

In 2001 the average price of a home in England was £121,769, and the average salary was £16,557. In 2011 the price of the average home was £236,518 – an increase of 94% – while wages had risen by just 29% to £21,330, the National Housing Federation said.

http://www.guardian.co.uk/money/2012/aug/17/house-prices-rise-faster-wages

There is a clear need for an expansion of homes for rent in the UK. As social house building has declined sharply in recent years, the private sector has provided an increasing number of homes to rent. There are some terrible private Landlords, providing slum dwelling to the most vulnerable in society. This private sector is highly deregulated, and much the worse for it. A boom in house building at affordable rents would be best performed by either Councils or Housing Associations.

Another source of housing is the refurbishment of empty properties. In November 2011 Homes from Empty Homes reported that 720,000 homes were stood empty. 279,000 had been empty for more than six months. Legislation exists that allows these to be taken in local authority hands, but is barely used. Also, many former industrial or business premises exists, closed and dilapidated. For example, where I live in West Yorkshire, lay a number of old mills that could be converted in literally scores of new flats. This creates homes, jobs and clears up environmental eye sores.

These new homes could be build to high environmental standards, reducing energy consumption – good for the pocket of their tenants and good for the slowing down global warming. Another benefit would be the driving out of slum landlords over time.

The financing of this building boom is important. I have proposed brick bonds in a previous post, based on raising the money from savers.  One could also mention that billions of pounds are being lent to the banks at very low interest rates. It would a worthy use of this money to spend on social housing and affordable home to buy.

It must be remembered that house building creates jobs, from brick layers to apprentices and the whole supply chain, and this brings money into the Treasury. Benefit payments fall. Councils and Housing Associations have capital assets that will create income year after year.

So this week’s proposals on offer are not a solution to the UK’s housing crisis.

So what are they?

I suspect they are no more than a gimmick to make middle-class home owners feel better, and hopefully buy off those votes.