First Time Buyers – debate September 2015 Part 1

As a result of my successful amendment to the 2014 budget, the Housing Department and Treasury & Resources Department were instructed to produce a joint report which was meant to set out proposals for the use of the Bond proceedsto help people get on the property ladder, either through the use of the Bond proceeds, or by any other means.

The resulting report, which was 3 months late, was a big disappointment and seemed to completely miss the point by holding fast to Housing’s current policy of only supporting GHA Partial Ownership housing.  Their view that there was a binary choice and that no other schemes could sit alongside GHA Partial Ownership was nonsensical.

I am increasingly of the view that the current housing policy is not fit for purpose. What was fine 12 years ago, is not suitable in the current economic climate. Against the background of a weak housing market, the impact that it has had on the wider economy and the fact that the release of sites for new developments under the GHA Partial Ownership Scheme will take time to materialise, it is evident that further initiatives need to be developed to assist first time buyers in the short term.

 

I was not happy for the policy letter to be approved and set about developing an amendment that would kept this issue alive. This I did and laid an amendment proposing the introduction of a the creation of a modern day successor to the States Loans for Workers Scheme for first-time buyers, which extends the partial ownership model to the private housing sector.

My speech is set out below. It is a long one, but reflects the strong feelings I have that things can’t continue as they are and something must be done to change the present situation.

Sir, Firstly like to say what a shame it is that we don’t have Deputy Dave Jones with us for this debate today. Whilst we are on different sides in relation to this matter, I think the debate will be lesser without his contribution and hope that, if he’s listening,  what I’m about to say doesn’t affect his recovery. I’m sure we all wish him a speedy return.

Before I start, and before Anyone stands up and says they don’t want a loan deposit sceme, can I just make it totally clear we are not proposing such a scheme in any shape or form? We had 2 ex-Deputies a couple of days ago accusing me of being naïve for proposing such a scheme before they had even seen the amendment.

So, Deposit scheme no. Partial Ownership scheme yes.

I should make it clear that I am totally supportive of the GHA partial ownership scheme and members will note that this amendment does not impact on that. It definitely has a place. However, it is not the only solution.  What this amendment does is recognise that the GHA scheme itself is not enough and I will explain why.

Now let’s look at today’s reality which others have already made clear;

House sales down, house prices down,  new builds down, document duty down.

If anyone wants evidence to demonstrate that the housing market is not in healthy state then they only have to look at income from document duty, whether you like it or not. In 2007 the States took £24m from house sales. This year it is predicted we will take £12m. That is a halving in 8 years. Even since 2012 it has fallen £5m! And this just reflects the fact we have had the lowest number of property transactions in decades.

That is today’s reality and it is that reality that is not addressed in this policy letter. That is why we can’t just accept it as presented and that is why  I am laying this amendment today.  As Alduous Huxley said facts do not exist because they are ignored.

Deputy Le Clerc and myself have spent some considerable time since this report was published speaking and listening to various people with an interest in this matter.  Yes that includes developers and the construction industry, finance providers and other experts, but also members of the public currently in limbo as a result of the position we are in today. These discussions have informed our views and led us to this amendment.

In essence, what we are seeking to do is to create a modern day successor of the States Workers Loan Scheme by taking the partial ownership model and applying it to the private sector.

Again, I repeat, It is not a loan deposit scheme! In any shape or form.

 

 

Now, I would expect  the Housing Department to support this amendment as, according to the first slide in their presentation on Friday they stated, and I quote, ‘Except for partial ownership, schemes are damaging’.  It also meets the criteria set out in the policy letter, which will become evident during my speech and which I will summarise at the end.

We believe that at this present moment in time there is a place for a scheme that complements, rather than competes with the GHA. As good as the GHA scheme is it has limitations and extending it too far could have adverse consequences. And I’ll give a few examples

Firstly, at present there are people who fall out the qualification criteria for a GHA home, but can’t get onto the private housing market. I know  a teacher, who, with her husband had been on the GHA Partial Ownership list for 2 years for a one bedroom property but wanted to change this to a 2 bedroomed property as they were trying for a baby. However, she was told she wouldn’t qualify for a 2 bedroom property and was taken off the list. They are therefore now stuck in the over-inflated rental market. Something Deputy Le Clerc will speak about later.

 

Now that is just one case, but it does illustrate how there are potential first time buyers who fall outside the criteria but can’t get into the private housing sector.

Secondly, and according to the SHT report, only 117 partial ownership houses have been built by the GHA. I believe there are more now, but still less than 200. We read that, and I quote, ‘None of the cheaper land types are in such plentiful supply to be sufficient to enable the Department to meet its recommended affordable housing target.’ The Policy Council in its letter of comment states its concern that the policy letter doesn’t identify any specific sites that will enable the delivery of such properties in the immediate future.

As per T&Rs letter of comment, the Housing Department target of 171 doesn’t even fit GHA’s aim of just 80 new homes pa.  If the GHA reaches its target there will still be a shortfall of 91 dwellings each and every year and when people are being told that someone added to the waiting list now will have to wait  5-8 yearsfor a 2-bedroomed property.

The desperate attempt to find new sites has resulted in the ridiculous situation of the Housing Department supporting the building of 3 storey flats on Grade 1 prime quality agricultural land. This at a time when we are told in the SHT Report that sufficient numbers of planning permissions have been granted each year to consistently meet the housing target.

And whilst there is merit in finding appropriate sites on States’ land, the salient word is ‘appropriate’ should the most valuable prime sites be used for subsidised housing? What land is suitable?

This at a time when, As Deputy Kuttelwascher said yesterday, there are already a lot of empty properties not selling.
Thirdly, the GHA partial ownership model applies to specific houses, built as affordable housing. Such homes may not suit all families, especially those who want their own home. Members should also be aware that the GHA homes are provided on a long leasehold and have to be sold back to the GHA when the occupants move. Indeed, no document duty is paid on such homes as they are long leases and not freehold purchases. So, for every affordable home built by the GFA, zilch goes to Treasury.

 

So, as has already been made clear by others, we currently have a scheme that whilst working well on a small scale, has limitations. It is these limitations that we are seeking to address.

Firstly, through using a partial ownership model, people will buy what they can afford.

Secondly, such a scheme is not linked to specific houses. If a first time buyer meets the necessary criteria, which will be developed to ensure they don’t overlap the GHA, they can take partial ownership of the house they want and can afford.

Thirdly, by enabling more people to buy their own homes there will be less dead money going into the inflated rental sector which should also stabilise.

Finally, by enabling this scheme to be applied to private sector new builds, this should  encourage  developers to start building again. After all we have enough planning permissions to meet the SHT, the problem is there is no confidence in the market to build. Deputy Perrot, Spruce and Kuttelwascher have already said, planning covenants are likely to stifle new builds, this scheme would negate the need for them.

 

By balancing new and existing properties, in other words, adding to supply at the same time as supporting first time buyers, any possible inflationary effects will be mitigated.

 

And, on that front, I would finally like to focus on the wider economic issues here as I think there have been some pretty simplistic statements made by the Housing Dept on this front that need addressing.

In the presentation from the Housing Department on Friday where we were told that house prices are not affordable, so homeowners needed to reduce their asking prices and then people can buy them. Mmm, now it’s important to consider this point as it does underpin the approach that Housing Dept is taking which is that the only solution is the GHA partial ownership scheme.

The Department claim that House prices are unrealistically high and any scheme would only make people afford unrealistically high prices  but  If house prices are unrealistically high then what is a realistic price?  If the hope is that prices would be such that the GHA Partial Ownership scheme was not required then prices would have to fall by, say, 50%.  That would be disastrous for existing house owners and the wider economy.

Recently the Housing Minister in an email to a concerned father who’s son couldn’t sell his flat for what he bought it for, stated;

‘you take a risk when buying a property’ but in the next paragraph he states that the GHA  ‘PO is an excellent scheme, as people take their equity and buy on the private market.’ Well , sorry that’s all well and good, but not when prices are falling they don’t.

The Housing Department also claim that feeding the property market risks a dangerous increase  but lets go back to what I said at the start and what has already been made crystal clear by other yesterday and today, –  the market in 2014 was the worst on record and 2015 is even worse Talking to those in the industry, house prices have fallen 10-15% in the last 18months already and professional valuers are valuing today 20% below last year’s actual prices.   A 20% haircut is not “slight pressure”   Just to remain inflation neutral there would need to be a 20% upward movement in current price aspirations.

And a falling market weakens the wider economy that benefits from properties being bought and sold:  for carpets, curtains, home furnishings, electrical goods, builders merchants, all types of tradesmen, DIY stores etc and all the related employment and taxes that all these provide..

I say we are at a position where we need to intervene in the property market simply to restore stability before any modest growth might be seen.

The Housing Dept need to be careful what they wish for, as there is evidence that a sustained fall in house prices can play a crucial role in causing an economic recession.  Putting in place a scheme that supports first time buyers will give greater stability to the market not cause rampant inflation.

Finally, I think it is important, just to recap how such a scheme meets the criteria as set out in the policy letter.

  1. Criterion 1 – It is not inflationary, there is no evidence to suggest the scheme will contribute to further increases in house prices.

Well  by helping first time  buyers have access to the property market they wouldn’t ordinarily, it could be inflationary, however, this can be mitigated by balancing provision of new builds and existing properties.

  1. Criteria 2 – It does not help a minority of buyers in a way that causes harm to the majority

creating more confidence in the market, as this scheme will, will help everyone, not least the  developers who will see the benefit of building again. And boy do we need that. Deputy Sherbourne said as much yesterday. Deputy Laurie Queripel spoke about how Developers wanted to get involved in creating affordable housing but they were getting nowhere with the Housing Dept who were wedded to one Model. I do wonder whether th GHA  believe they are the only solution. I suspect that they would actually welcome it given the gap between their target of 80 builds per year and that of the Housing Dept of 171.

  1. Criteria 3 On balance, based on all available evidence, the costs of implementing any scheme are outweighed by the benefits it brings about.

This scheme will increase revenue, enable affordable housing without grants or subsidies, encourage people to stay rather than leave Guernsey and hopefully entice back our home grown graduates back to the Island, something that is not just a benefit but essential for the future of this Island.

This scheme passes on all counts and so deserves further investigation.

The proposals we would like T&R to investigate will not only complement the GHA scheme, but will provide various additional advantages and halt the current decline in the housing market, as well as benefit the wider economy.

So in summary, yes GHA Scheme, has a place, but it can’t be and isn’t the answer to everything. On that basis, we need to ensure we have an alternative that give the market more confidence and stability

I urge all members to support this much needed amendment.

 



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