The UK government will offer housing associations and developers £400 million ($652 million) in cheap loans to build new homes in a “Rent to Buy” scheme, The Telegraph reports.
In exchange for the loan, those groups will have to rent out the properties for below market levels for seven years. The plan is partly intended to help young people save up money for a deposit.
According to Eric Pickles, the minister in charge of UK housing, the new scheme “will help increase the provision of low-cost rented accommodation and provide a springboard for young people to upgrade to home ownership down the line.”
The “Rent to Buy” program — which compliments the government’s existing “Help to Buy” scheme through which people can buy a home with a small, 5% deposit and a government-guaranteed mortgage — represents another misguided government intervention in the UK housing market.
Societe Generale strategist Albert Edwards pinpointed the problem with subsidized mortgages last year, noting how it “encourages lending to borrowers with small deposits.” Pressuring young people to buy expensive houses is not the solution for exploding UK house prices, Edwards argued.
The real problem with UK housing can be answered in one chart: There are simply not enough houses being built in England to keep up with the growing population.
In England, where over 80% of the UK’s population lives, fewer than 150,000 homes were built last year. That’s about 100,000 fewer than the country needs.
One reason that new homes in London are not being developed has to do with the Green Belt, a category of land on which building is prohibited. Here’s how Pickles described the protected space to the Telegraph last year:
“No-one who loves our idyllic and precious English countryside wants to see the sword of Damocles hanging over it… O ur reforms safeguard our glorious green spaces and countryside. They protect the green belt — that vital green lung that prevents urban sprawl.”
There’s a whole ring of “glorious green space” around London, the area that is in the most desperate need of new housing to meet demand.
The Conservative party is trapped between a rock and a hard place: It acknowledges that the UK needs more housing, but progress is going to be limited as long as the party’s voting base is so strongly committed to the belt.