Budget 2015: How George’s Help-to-Buy ISAs widen inequality between the generations

As part of our Vox Pop series, recent graduate Tom Hannah expresses his dismay over one particular aspect of the recent Budget that will pump more noxious fumes into a climate of intergenerational unfairnessIF_Blog_Vox_Pop_Retro_Mic_logo_revised

Budget day used to be interesting. Chancellors would reveal to the world their tipple of choice and we’d get an insight into their personalities, dependent on their drink choices. Dandyish Disraeli opted for a brandy with a drop of water, Gladstone went for sherry, and one can only assume that Churchill downed a bottle of brandy before returning Britain to the gold standard in 1925.

George Osborne, like his recent predecessors, decided to speak sober with a glass of water (how adventurous) and one might imagine those who sat on the benches of Parliament pining for pint as they watched the orotund Osborne babble on about British growth (fuelled by the South-East housing boom) and how we’re now paying our way in the world (despite the balance of payments displaying a dismal deficit).

Help-to-Buy – really?

Instead of critiquing the budget as a whole I’d like to focus on one aspect, the “Help-to-Buy ISA”, which promises to top up savers’ nest eggs by £50 for every £200 saved. Whilst it looks on paper like George is trying to help young buyers get on the housing ladder, in reality he is just further fuelling demand for houses, driving up prices and furnishing the pockets of the “geriarchy” who control 87% of Britain’s housing wealth.

We have a housing crisis in Britain. We’ve had one for quite some time now, yet very little seems to be done about this. One could blame the private sector and the cartel of house builders for not providing, but in reality this issue is yet another failure of government in Britain. Too busy meeting with lobbyists, filling out expenses forms and plotting with the EDL, they’ve forgotten that people need places to live!

We are now building 250,000 fewer houses than we were in 1970. During this period the population has increased by 9 million and demand for housing has risen. As people marry older and divorce more, the number of houses required has steadily increased and supply has been unable to respond to this demand. The Conservative Party have promised to build 200,000 more homes if they win the general election; however, with only 25,000 being built by the government last year, one can only assume that this is meaningless rhetoric.

Priced out

My generation have been priced out of the housing market. As a result, we’ve seen a rise in renting amongst young people: 48% of 25–34 year olds are now renting, and the proposition of owning a home outright is a mere pipedream for many in this age bracket.

This isn’t necessarily an issue: in Europe many people rent their homes throughout their lives. However, in Britain personal wealth is very much tied to property ownership and young people are unable to invest in the property market and as a result hold very little wealth.

This is a critical problem: houses are no longer homes, they are investments. In my lifetime I’ve seen thousands of new homes built in South London. Around Battersea Power Station numerous flats have popped up, but these are not being built for young British people: they are investments for Chinese and Middle Eastern elites.

We’ve become so ineffective at building houses that you can almost guarantee that if you buy a home in London the value will increase 10% by the end of the year simply because demand always exceeds supply.

Playing politics with housing

The government have done little to dampen the demand and near nothing to increase the supply. The inelasticity of housing supply has allowed prices to rise that in turn make it look like our economy is growing. And Osborne has decided that he is just going to stoke the fire by offering first-time buyers the opportunity to get their foot in the door. By further fuelling demand he is worsening the housing crisis and ensuring that homes are not going to be built for purpose but for profit.

Furthermore, although veiled as a policy for the young, the Help-to-Buy ISA is designed very much as a vote-winning scheme that will appeal to older voters: after all, it is the baby boomers who own all the houses and it is they who are profiting from our farcical housing system which allows one to grow rich simply through the merit of having bought a house in the 1980s/90s. The Help-to-Buy ISA is another short-term, ill-thought-out vote winner that does very little to improve our housing prospects or our economy.

So what do the other parties offer? Well, the Lib Dems have said they’ll build 300,000 homes, and the Greens have said they will buy up homes to increase the social housing stock as well as work with the EU to introduce regulations that will encourage house building. The Labour Party have promised 200,000 new homes and UKIP have said they will work hard to develop more brownfield sites.

Promises to build more homes are a good start, but frankly I doubt any of them will reach these targets, so I pretty much disregard these as superficial manifesto pledges. In reality we need to find a way to incentivise private property builders to build real affordable homes in areas that need housing, and to subsidise these buildings so they aren’t just being built for profit. Councils need support from central government in building houses in their areas.

We also need to find a way to ensure these houses go to the right people. We should introduce taxes on those buying second homes and a tax for foreign property-owners who do not reside in Britain.

I also really like the idea of garden cities, as they allow us to build from bottom up and allow for the opportunity to build houses that are energy-efficient and sustainable. However, if I put my cynical hat on I doubt we’ll see much investment in garden cities as who’d want to build energy-efficient homes when the energy sector is such a big lobbying group? This can also be said for incentivising house builders in the private sector: after all, they benefit from keeping the housing supply low so they can sell what few homes they build at an expensive rate.

Another option is to work on regulation in the private rental market. People shouldn’t be paying a shed-load to live in a damp ridden box in Poplar; rents should only be allowed to rise in line with inflation, and stricter measures should be put in place to punish irresponsible landlords.

What we don’t need is the Chancellor of the Exchequer stoking demand and pricing out young people from property ownership. No more help-to-buy, no more ISAs – just increase the supply of houses please!