I’m starting to hear a lot about the problem of housing for low to middle income households. Two events this week. One was the launch of housing association Gentoo’s Genie product, which removes the need for mortgages and deposits with a ‘home purchase plan. The second, today, was the Resolution Foundation think tank’s report on how low to middle income households are faring in the housing market.
Policy makers are trying to provide a politically appealing and genuinely affordable offer for low to middle income households – but as the slating that the government’s Help to Buy idea received shows, it’s no easy task.
First, who are low to middle income households and why should we worry about them? Blue collar workers, the Squeezed Middle, Alarm Clock Britain – whatever you want to call them, low to middle income families have been a decisive group to win over in key marginal seats in recent elections.
As we’ve been highlighting for some time, housing is a key issue for this group. Increasingly the low to middle income family is renting, or stuck on the lower rungs of the housing ladder unable to trade up as their family grows. Their housing situation is too often not meeting their basic needs, let alone their aspirations.
We’ve seen politicians get wise to the need to improve this group’s lot. The Help to Buy scheme was initially touted as the second-coming of the Right to Buy, but seems set to actually help very few low and middle income families to buy a home.
Counter-intuitively, the smaller deposits enabled by Help to Buy mean bigger loans and more expensive repayments, so Help to Buy still leaves the average home out of reach for the average family in much of the country.
So what about the Gentoo Genie product? By cutting deposits out of the equation, it is more instantly attainable than saving up a deposit and taking out a 90% mortgage. But with a comparatively high APR it works out even less affordable on an ongoing basis than the Help to Buy 95% mortgage. It removes the deposit barrier, but the gnarly affordability barrier remains in much of the country.
Resolution Foundation’s initial analysis confirms this picture. Low to middle income households fare ok in some markets, but there are many which are quite or very unaffordable for local families. In these markets, neither market rent nor conventional home ownership are serving ordinary families well – meaning they have to stretch their finances to the edge or live in a home that’s too small for them. Resolution Foundation’s analysis shows that in each scenario, shared ownership works out significantly more affordable.
Whichever way you look, whatever the financial whizzery in your product, however small you make the deposit needed; at current prices, mortgaged home ownership remains unaffordable for low to middle income households in much of the country. We need a better understanding of these markets and how big the affordability gap is.
There could be a big prize in a politically appealing and effective solution to low to middle income families’ housing problems. To make a real difference, we need to focus on solutions to the real problem: affordability. Politicians’ and the industry’s focus on deposits will only take us so far. The Resolution Foundation’s analysis suggests shared ownership can be a more affordable option in unaffordable areas – policy-makers need to explore further how shared ownership can plug the gap in the market.