Use the tax levers to get more houses built.

Two pieces of news this week about the housing market caught the eye and stimulated more debate on what is not a main headline grabbing issue but a very important economic and social problem vexing some of the best minds.

The first news was the Government’s £400m mortgage indemnity scheme to help the first time buyer market.  This means part of a borrower’s loan is underwritten so that the borrower needs a smaller deposit than the standard 20%.  Effectively lenders can offer 95% mortgages but only be on the hook for 86% of the loan.

This will manipulate the market, it will distort values and some have said it is another layer of securitised debt and what will happen if interest rates rise or unemployment continues to increase and then house prices fall?

Whichever way you look at the challenge for first time buyers, the simple fact is that prices are still too high for them hence the falling number of sales to those getting on the ladder for the first time.

The other piece of news was the fall in numbers of new affordable houses being built, with figures from the HCA showing 454 affordable homes built in the 6 months to September 2011 compared to 13,402 in the previous period, a 97% drop.  There is an issue defining affordable housing and the government has said this is better categorised as 80% of market rent.  The government has pledged £1.8 billion towards its Affordable Homes Programme hoping to deliver 80,000 affordable homes by 2015.

There is clearly an issue in the housing market for both first time buyers and in the affordable new home delivery market.  Government funding is constrained to help, but the danger is doing too little or being interventionist in a way that distorts the market simply creating other problems ‘down the line’.

You have to wonder if the use of tax breaks and incentives would not be a better way to help these market problems.  Whether a re-introduction of some sort of mortgage interest relief at source (MIRAS) for first time buyers could be a solution for those earning less than say £25,000 per annum.  Can the national housebuilders not be encouraged by tax incentives in the provision of affordable housing? There is a need to be creative on measures to help the market and we should be having wider debate on what things may help.

Charles heads Harris Lamb’s award-winning Commercial Agency Department, where he specialises in large industrial, warehouse and logistics premises. To speak with Charles, call him on 0121 455 9455 or email      

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