The 2024 budget came and went with little support for the housing market. Instead the housing industry continues to feel the combined impact of a raft of interconnected policy initiatives. These are all well meaning in their individual intent but made worse when combined together and now turbo charged by the impact of higher borrowing costs.

We need a stronger vision for how to remove some of the blockers for the housing market – how to get back to building more homes, improve supply in the private rented sector and reduce the barriers for first time buyers to access home ownership. There are no easy solutions but there is a clear need to be bold and reverse the costs and complexity of endless ‘policy inflation’.

Private rented sector

The private rented sector is a very important tenure, supporting the economy and movement of labour while providing much needed flexibility. The rented sector doubled in size between 2000 and 2016 but this has now stalled as the economics of buy to let have deteriorated.

The big change was in 2016 thanks to tax changes that sought to level the playing field between investors using interest only mortgages and first time buyers using repayment mortgages. In addition, a slew of new regulations and widespread, piecemeal licensing schemes, have added to the costs of being a landlord.

Now higher mortgage rates are hitting the 30% of landlords with larger (>50%) loan to value mortgages. Many are having to inject more equity or sell up and rationalise their portfolios which is why the sector isn’t growing. Half of private rented homes are owned by just a fifth of landlords now as the sector becomes more professionalised.

What is lacking, however, is the positive case for the importance of a large and flexible private rented sector and the support this provides to economic growth and productivity.

New housing supply

The new homes industry has faced a steep increase in the costs of ‘policy inflation’ just as the housing market has started to weaken, denting new housing delivery. The costs keep growing but the market isn’t there to help pay for them.

The Grenfell tragedy cast a spotlight on the construction industry and building standards. A new residential property developers tax for the larger firms was introduced to pay for remediation on top of commitments to repair defects to older buildings. New building regulations also came into force in mid 2022 seeking to improve the energy efficiency of homes and raising build costs.

At the same time the planning system has stalled. Policy uncertainty over the last three years, and particularly over the last year, has slowed local plan-making and adoption significantly. At the end of 2023, 64 local planning authorities had delayed or withdrawn their local plans, many of these in southern England where the pressure to build is greatest.

Some radical simplification of the planning system is needed to get some momentum back into housing delivery. This appears to be one of the main themes in the forthcoming general election but while it’s easy to say, radical reform may take longer to materialise on the ground.

A regulated mortgage market

The regulation of mortgages is much tighter than it was a decade ago. As mortgage rates fell to record low levels the Bank of England acted to stop households taking on unsustainable levels of debt through a mix of regulations from 2015 such as limits on high loan to income lending and stress testing affordability.

These stopped the boom and bust in house prices as evidenced over the last 18 months in how resilient the market has been to higher mortgage rates. However, they have come at the cost of making it much harder for first time buyers to access home ownership, especially in southern England. The average first time buyer in London needs a £145,000 deposit to buy.

We’re not going to get more homes built and ease pressure on the rental market with a first time buyer market reliant on the bank of mum and dad. The case for mortgage innovation and supporting those with smaller deposits remains clear cut.

Political will to tackle and remove barriers

The last big area of reform was welfare where Ian Duncan-smith spent five years in opposition to plan reforms that are still rolling out today. It feels like a similar approach from a senior politician that wants to lead, far reaching reforms to housing is much needed – there are no quick fixes. At the same time the power of delivery and enablement is on the ground at the local authority level. A less centralised approach and greater empowerment of local city regions is essential if we are to get long lasting improvements for the UK housing market.