MortgagesApr 20 2015

Fix housing supply and market will fix affordability: CML

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Fix housing supply and market will fix affordability: CML

Getting the supply side of the housing market sorted “once and for all” needs to be a key priority for the next government, according to the Council of Mortgage Lenders’ chairman.

Speaking at the industry body’s annual lunch on Friday (17 April), Moray McDonald - also head of personal and business banking products at the Royal Bank of Scotland - stated that the UK needs “a housing strategy that commands all-party support with a three-line whip from national government down to the parish council”.

He added that this strategy should come from the industry, in partnership with government. “Fix this, and the market itself will address affordability.”

This stance was backed by guest speaker and author of two influential reports on housing supply and planning, Kate Barker, who commented that local opposition to development was stifling the political will and improvements in the planning system.

“Despite measures such as the New Homes Bonus, the costs of new supply remain largely local and are perceived as large, whereas the benefits are small in the short term and geographically dispersed.”

As a result, she suggested that a determined approach to bringing forward public land will be what is needed if the next parliament is going to follow through on plans to boost annual housing supply by around 200,000 by 2020.

Last week’s pre-election party manifestos all included promises to build more homes, but doubts have been raised on how quickly these can be turned into reality over the coming years.

The Conservatives’ manifesto revealed plans to build 200,000 starter homes for first-time buyers, while Labour also committed to building 200,000 homes a year by 2020 and the Lib Dems aim to build 300,000 homes a year.

Ms Barker stated: “It may depress you to hear a plea for greater reliance on the state to act – but the planning system suppresses the market mechanism so much that it is hard for it to deliver.”

In terms of her audience of mortgage lenders, she observed that over the next five years the housing market ought to be supported by increased demand to renewed income growth and continuation of housing undersupply relative to unconstrained household formation, but that there were additional factors at work, including potential interest rates of two or three per cent.

“The issue will be whether the income growth prices more people back into the market than are priced out by the higher bank rate. If we get productivity growth back – this would be unexpected good news.”

peter.walker@ft.com