In its report, Unfreezing the housing market, the UK’s leading business group says boosting housing activity could be a major game-changer for growth and economic recovery.
And a well-functioning housing market is a critical precursor to long-term economic health.
The CBI is calling on the Government to rise to the twin challenge with a two-pronged solution, which will get the housing market moving in the short-term, and help tackle structural failures to ensure long-term stability.
Short-term recommendations include introducing a Mortgage Indemnity Guarantee insurance scheme to enable first-time buyers to take out low-deposit mortgages, and allowing them to access savings locked up in their personal pension pots to boost their deposits.
Recommendations for the longer-term include reducing the regulatory drag on house builders, ensuring that the planning system is pro-growth to make the building of more new houses possible, and reviewing Stamp Duty.
John Cridland, CBI director-general, said: “We have to do more to give our young people hope in the future and support their aspirations to be home-owners.
“While we would not want to see a return to overly-risky lending practices and unsustainable personal debt levels, it is important that we get credit flowing to those who need it most.
“We could reduce the risk of higher loan-to-value mortgages if the Government encouraged lenders to take out insurance against the borrower failing to meet payments.
“We can also jump-start the housing market by allowing first-time buyers to boost their deposits by borrowing their own pension savings, and ensuring existing owners who want to move house have more options.
“It’s also crucial that the Government presses ahead with relaxing some planning rules for “change for use”, particularly from commercial to residential.
“Owning a home has been a natural aspiration for generations of Britons since the 1950s, and should not become the preserve of a lucky few. Without a steady stream of first and second-time buyers, the housing market freezes and the whole economy suffers.”
Housing is a vital part of the UK’s economy and infrastructure, and the stagnation seen in house sales has made the economic downturn worse. It accounted for around a third of the 6% drop in GDP during the recession, while the number of first-time buyers fell from a peak of 167,400 in 2001 to 36,200 in 2011.
A resurgence in housing activity could help drive the UK’s economic recovery.
The CBI recommends that in the short-term, the Government and businesses must work together to:
- Support first-time buyers by enabling low-deposit mortgages backed by MIG insurance schemes. This would be provided on a risk-sharing basis by mortgage providers and house builders, with a possible role for the Government in providing tail-risk guarantees
- Allow first-time buyers who have pension savings to boost their mortgage deposits by borrowing a percentage of their own pension pot at a low cost, to be paid back during their working life
- Support existing homeowners wanting to move house with special mortgage products designed for homeowners in negative equity
- Ensure the availability of development finance to small and medium-sized house builders
- Implement planning rule changes for business to residential conversions, and consult on broader “change of use” rules
“Despite five million people languishing on waiting lists because of the housing shortage, house building is at its lowest peacetime level for 90 years. A quarter of a million new homes are needed each year for at least the next twenty years to make up the shortfall.
“So we’re also urging the Government to deliver a comprehensive, long-term strategy to tackle the structural supply and demand failures in the housing market.
“This must include planning incentives to support housing developments, reducing the regulatory drag on house building, and, in time, reviewing Stamp Duty.
“These, along with the other measures outlined in our report, will bolster a well-functioning and sustainable housing market as a key feature of the UK’s long-term economic growth.”
The CBI recommends the following to address long-term structural housing market failures:
- Ensure that the National Planning Policy Framework retains its strong pro-growth thread in order to build more homes
- Reduce the burden of national and local regulatory drag on house building
- Ensure that financial regulatory reform does not restrict the availability of mortgages
- Encourage people to save from the point that they enter employment
- Review Stamp Duty, with a view to making it more progressive
- Ensure that the Government’s housing and sustainability objectives are aligned
