This week our Chief Economist, Dr Nicola Headlam, has been appearing on BBC Radio 5 Live playing Fantasy Chancellor; where members of the Great British public have put forth their ideas on three hot economic topics and Dr Nic used her expert opinion to judge which Chancellor Jeremy Hunt should consider in the Spring Budget.
She has already discussed how to bring energy bills down and how to get over 50s back into the workforce. Today’s topic was how to improve the housing market.
Not only are house prices extremely high but so too are deposits. This means that people who theoretically would pay less on a mortgage than their current rent, and therefore could afford a mortgage, are unable to put a downpayment on a house and enter the property ladder. This means that they will pay more in rent over their lifetime and be left with no asset to show for it.
The first idea was to de-marketise housing in the UK. This would entail a huge social housing building project, eliminating rent and mortgages. As these are generally an individuals highest monthly expenditure, people would have significantly more money to spend in the economy.
Dr Headlam said that whilst this idea sounds good in theory, it would collapse the housing market causing significant economic turmoil and would most likely harm the economy in the short to midterm; and possibly the longterm as well.
The second idea was for government backed affordable housing and rent-to-buy schemes. In this instance, the government would launch a mass housing building project across the UK, people would then move in on a rent-to-buy basis, where the first 5 years would count as demonstrating their ability to pay and deposit. This would circumvent the high deposit threshold of the open market and allow many more people to get on the property ladder.
Dr Nic agreed with this idea but advised that the key issue it highlighted was getting rid of unaffordable deposits. She put forward that one of the best changes to the current property market would be changing how the lenders approached lending. By lowering deposits and using rental history as proof of ability to pay, housing would instantly become significantly more accessible. After all, if someone can afford to pay more than the cost of a house over their lifetime in rent then it makes no sense to deny them a mortgage.
With that, the Spring Statement Fantasy Chancellor was over. We have seen some very good ideas from the public over the last three days and they showed that people are paying close attention to the UK economy.
The BBC asked Nicola if there was anything that she would like to see in Jeremy Hunt’s Spring Budget. Nicola would like to see investment in transport infrastructure in Leeds and West Yorkshire. The introduction of a tram route would allow far greater access to jobs to people of the surrounding area and bring more shoppers into the retail centers.
Red Flag Alert would like to thank you for listening in these past three days and playing Fantasy Chancellor with us.
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