Mortgages  

Johnson's housing policy announcement not based in reality

Lewis Shaw

Lewis Shaw

It's another day, and therefore it is another blundering policy announcement by Boris Johnson and the Conservative party.

At a speech in Blackpool, Johnson outlined proposals to extend the right-to-buy to include Housing Association properties, giving people between 35 per cent and 70 per cent discount on Housing Association properties. Johnson said he wanted to finish the reforms that Margaret Thatcher had started in the 1980s. 

On the surface of it, this seems like a sensible policy. Most people think it is great if people can own their own home, and if that means using the right-to-buy scheme, so be it. No one wants people stuck in perpetual rent; homeownership, as we know, is excellent for mental health, long-term stability, security for your family and a legacy for any children.

Homeownership comes with huge societal benefits, too. According to research by Luke A Munford, Eleonora Fichera & Matt Sutton: "At the macro-level, we find that a 10 percentage-point increase in homeownership rates is associated with a 2 percentage-point reduction in the number of people reporting having a longstanding health condition." 

It seems churlish to suggest this would be a bad idea. Unfortunately, however, there are several fatal flaws with Johnson's proposal to sell off Housing Association properties:

  1. They're not his to sell.
  2. The discount on the properties means they will be sold at a loss.
  3. They tried a pilot of just this policy in the West Midlands, where people were offered the ability to buy their housing association home. If those results were to be believed, if it had been rolled out nationwide, it would have meant fewer than 1,000 people would have become homeowners under this scheme.
  4. Johnson insisted that for each housing association property sold to one of its tenants, a replacement would be built to preserve the number of social housing available for rent.

So, where does this money come from? First, we have got a capital loss in selling the property off at a considerable discount. We have got to replace that social housing, including the cost of building and buying new land, along with a planning process to navigate while trying to find builders to construct them. 

Using benefits 

In the same speech, Johnson told us that he wants to allow people to use housing benefits to support mortgage affordability. The last time I looked, housing benefit was for people struggling to pay their rent due to a change in circumstances, loss of income or significant life event.

If people struggle to pay rent, it presumably follows that their income is below the level it needs for them to survive. If people are receiving state aid by way of benefits to help them pay the cost of rent and bills, is it sensible to allow them to take on debt if they are not in a position to afford the rent?

I have no objection to people claiming benefits. I am a great believer in the welfare state. I think benefits should be increased to try and reduce the inequality across the country between the lowest paid and highest paid, but also the regional inequality.

The UK has one of the most unequal geographical wealth inequalities of any developed economy across Europe. We also know that since 1980, 2.6mn right-to-buy homes have been sold, and most of them have ended up in the hands of private landlords.

It seems as though Johnson does not understand how the mortgage market works. Currently, many lenders allow people to use state benefits to support mortgage affordability and have done for years. Some lenders will take the vast majority of benefits at 100 per cent, and some will take 50 per cent. So it varies from lender to lender.