It seems to me that Homes England maintains a fairly low profile – but they are one of the biggest beasts in the housing world, with assets of around £17bn.
They published their annual report on 5 November. It is a mammoth 173 pages and makes for heavy reading, with 85 pages devoted to the annual accounts.
To begin with, they funded 40,452 housing completions in 2019/20 (slightly ahead of their target), of which 16,863 were affordable rent and a pitiful 1,478 social rent. Funding affordable housing is obviously one of their primary roles.
But I was mainly interested in looking at the details of Help to Buy. As you will know, the equity loans that support house purchases under Help to Buy sit on the Homes England balance sheet. In fact, a staggering £14bn in equity loans is now sitting on Homes England’s balance sheet – around 80% of its net assets.
To pursue Help to Buy you need a 5% deposit, and the government will give you a 20% equity loan (40% in London). The remaining 75% has to come from a mortgage or your own savings. Because the loan is set as a percentage of the value of the property, it can go up or down in value dependent upon house prices.
In 2013 there were 19,700 loans provided to house buyers in England. Last year this had risen to 51,500. In total, 272,811 households have bought homes with a Help to Buy equity loan and so far 49,000 of them (18%) have repaid the money, paying back almost £2.5bn on £2.25bn of loans, so an effective profit of around £2.25m for the government due to rising house prices. But the latest accounts state that the loan book of £14bn could drop in value by up to £4.3bn next year if the housing market falls off a cliff. So, the government has taken a giant punt on the housing market, effectively with our money!
Readers of this blog will know that there has been a great deal of criticism of Help to Buy, not least from the National Audit Office and the Commons’ Public Accounts Committee. Between them they accepted that there had been some boost to supply, but found that the scheme inflated house prices, that most buyers (63%) could have bought without the equity loan, and that people earning more than £80,000 a year had seen the most benefit. The NAO concluded that the price of new built homes rose 41% between 2013 and the end of 2018, above the prices of existing properties. This is the so-called “new-build premium”, which has been artificially created despite the often shoddy quality of new homes.
When Help to Buy started in 2013 it was seen as a short-term fix to prop up the housing market, yet, despite all the criticism, it is being extended to 2023, albeit restricted to first-time buyers and with lower regional price caps. But these range from £186,000 in the North East to £600,000 in London. Should the state (aka you and I as taxpayers) really be subsidising someone to buy a £600,000 property? In my view, no.
But the problem is that many of the largest housebuilders are now completely dependent upon Help to Buy – in recent times, 50% of Persimmon’s sales were with Help to Buy. Pre- Covid, many of the largest housebuilders were posting huge profits (£1.04bn at Persimmon, £901m at Barratts, and £821m at Taylor Wimpey, for example.) Many were paying out dividends to shareholders and also paying lip-smacking levels of remuneration to senior staff. A quick look at Taylor Wimpey’s results for 2019, for instance, shows that the chief executive had a package of £3.03m in total, and two of its directors received well over £1m. All this was funded with the support of the taxpayer. It puts our annual hand-wringing over CEO pay into perspective.
It is true that profits have fallen back as a result of the pandemic, but they are bound to pick up again once construction starts in earnest and the various vaccines take effect. As HQN CEO Alistair McIntosh has pointed out in one of his excellent recent podcasts, we have effectively nationalised some of the largest housebuilders. They are well and truly glued to the teats of the nanny state and show no desire to let go.
Yet, at the other end of the scale and unable to compete with the big boys, record numbers of smaller housebuilders are going bust: 368 in 2019 according to this report, compared with 312 in 2018, and 207 in 2016. This is despite the hollow pledge in the Planning White Paper to encourage and support smaller housebuilders.
Imagine, for a moment, if that £14bn of equity loan sitting on the Homes England balance sheet had been used to fund social rented housing. If you assumed £50,000 investment for each newbuild, that would have produced 280,000 new, high-quality homes – hugely outstripping the paltry 1,478 that were funded last year. The housebuilders would argue that the equity loans are paid back and are not the same as social housing grant for new rented homes. But, as the SHOUT campaign has consistently argued, this form of investment makes sense in the long run and would produce more benefit than the money wasted on Help to Buy. We all know that social housing pays for itself many times over; that it creates jobs, boosts the economy, and eases pressure on the private market, so allowing house prices and rents to become more affordable over time. It repays the taxpayer handsomely and, above all, it benefits the people who need it most, rather than those earning the most.
Artificial interventions in the housing market rarely turn out well: they usually lead to unfairness and inflate house prices. MIRAS springs to mind. It is time that Help to Buy was scrapped.