Magic wands for millennials

Young Money Matters         

A new regular bulletin from Young Money Blog

 4 October 2017

 The Government and Opposition are suddenly scrapping for the young vote (they took their time!) with new flagship policies on housing and student debt.  But are their remedies short-term fixes for long-term crises?

 Time to get real about housing

So the Tories have unveiled their magic bullet for the housing crisis: more Help to Buy. It follows Labour’s conference prescription: a return to rent controls. Both parties want more affordable housing, and the Prime Minister has promised an extra £2bn to build it.

Can these ideas work, and help the mass of millennials looking up longingly at the housing ladder?

Iona  says:  “Anything that gives young first-time buyers a leg up sounds fabulous on paper. But Help to Buy is limited to new-build, which has well-documented pitfalls, and has had a relatively low take-up in London where the situation is particularly chronic.”

She adds: “It’s telling that expanding Help to Buy has been criticised by Shelter on one side and the Adam Smith Institute on the other. From different perspectives, they argue that it can only squeeze prices up and make new homes less accessible for most first-time buyers. You would think that the Conservatives at this delicate juncture would heed such warnings and be wary of policies which amount to ‘more of the same’.”

Meanwhile Theresa May has  said an extra £2bn for affordable housing will hit the spot.

But a report also out today notes that only 40,000 affordable homes are likely to be built this year, still below the 50,000 in 2011 and 2012.  It looks like £2bn will build another 5000 a year…..Meanwhile there is a shortfall of over 100,000 homes a year in the south-east, where the average price is £290,000 – and £435,000 in London – against an ‘affordable’ price of £250,000.

Labour is floating a ‘landbank tax’ on undeveloped land held by developers, and promises council tenants and leaseholders a veto over estate regeneration schemes. Its big, headline-grabbing idea is rent controls.

Iona says: “I live on a London estate due to be demolished against residents’ wishes, so rhetoric around empowering residents is very appealing. And there are some voices in the development industry who say a landbank tax could work. But there is strong evidence from around the world that rent controls do not – that they lead to lower quantity and quality of accommodation, and create two classes of renter, the subsidised and the vulnerable.

“There would be both winners and losers from these policies, and the most damaged could end up being exactly the core demographic Labour is trying to woo.”

She adds: “Everyone wants affordable housing. It remains to be seen whether this catch-up budget will make a dent in the problem.  Like rent controls, subsidies for affordable housing can also risk  a moral hazard – people will ask who is entitled to benefit from them?”

The diagnosis is clear enough.  Today’s 30-year-olds are four times more likely to be paying rent than their parents were at the same age. Back in 1997 almost half of 25-year-olds owned their own place – now it’s one in five.

£1 a day better off – woo hoo

Cheer up active students, your tuition fees might be frozen at ‘only’ £9000! Break open the bubbly.

Theresa May has said fees will now be pegged, and loans won’t start to be repaid until the graduate is earning £25,000, not £21,000.

Iona says: “So for grads earning £25,000 or more, it means a bumper £1 a day windfall from the government. Don’t spend it all at once!

“And Theresa May’s ‘big announcement’ gave no comfort to the 18 to 24 year olds who are now paying a ridiculous 6.1% interest rate on their student loans.  The two-tier system sees graduates lucky enough to start courses in 2011 or earlier paying just 1.25%.

“While young voters are perceived to be leaning heavily towards Labour’s proposals (particularly on scrapping tuition fees), many have rightly identified that junking the current system may in fact lead to poorer members of society effectively subsidising well-heeled graduates.

“It all goes to show that there are no politically easy answers to the huge millennial issues that could well define the next general election – whenever it comes.”







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