Government fund won't beat second homes problem alone

Credit: Bankrx/Shutterstock.com

Beginning from today and running for five years, the fund will be distributed between nearly 150 UK councils, who will then use the money they receive to build new homes and help "local groups" with "improving technical skills, setting up support hubs to offer advice ... and providing staff to review local housing needs".

Almost one third of the £60 million will be going to councils in the South West, and it's hoped that it will go some way towards preventing second-home ownership from having a significant negative impact on local communities.

That said, £60 million is only enough to build around 461 houses, while in the first year none of the fund will actually be used to build anything. It's therefore unlikely that it'll make anything more than a very modest difference to the UK's housing crisis.

Decline and fall

And this crisis is particularly acute, what with the recent news that home ownership among 25-year-olds has more than halved in 20 years.

This is a big concern because, among other things, private tenants spend as much as 40% of their income on rent on average, whereas homeowners spend only 18% of their income on mortgage repayments.

Given that measures of absolute and relative poverty take account of housing costs, it's possible that the continuing increase of housing costs and the decline in home ownership may cause the level of national poverty to climb in parallel.

Details

As such, it's a good thing that the Department for Communities and Local Government (DCLG) are taking action on second-home owners, since the latter have played a part in the rise of house prices.

In particular, they're sending £19 million of the £60 million annual fund o the South West, since this region alone accounts for 21% of all UK second-home ownership. It's also the region with the highest proportion of private renters (outside of London), with 15.2% of the population renting from a landlord (according to the 2011 census).

The DCLG are hoping these such donations will spark an increase in house building in the targeted areas, with Catherine Harrington, the Director of the National Community Land Trust Network, saying, "We are delighted that the government is backing community-led housing with this new fund ... This fund could triple the 3,000 homes that Community Land Trusts alone already have in the pipeline."

Estimates and averages

However, as welcome as the support is, the hope that the Community Housing Fund, as it's officially called, will result in 6,000 new homes is somewhat ambitious.

This is because, even though it sounds like a great deal of money on paper, £60,000,000 doesn't cover as many houses as it might first seem.

While figures are scarce on how much it costs to build the average home, we spoke to the Federation of Master Builders. They told us that, given an average cost of £1,000 per m2 and an average area of 80m2, it costs around £80,000 to build a house in the UK.

On its own, this would equal 750 homes in one year, with the fund set to run for five, equalling 3,750 in total.

Unfortunately, two things are missing from this account. The first is that, for the opening year of the scheme, there will be no actual house building. Instead, "the first year of funding will be used to build capacity within local groups", meaning that they'll be some training, some recruitment, and some planning, but no new homes.

Added to this, the estimate of £80,000 for a house doesn't include the cost of land. Assuming that the councils involved will need to acquire land, this could make the average price per house considerably higher.

For instance, plotfinder.com - a listing website for plots of land - state that "the average price for a small development site in Q2-2013 was £212,915".

Perhaps councils can acquire land for less, but even assuming a lowish additional cost of £50,000 per house for land, the fund will see only around 461 new houses built each year, for four years (and not five).

Barker Review

In other words, the Government will have to do much more if they want to see an end to the housing crisis.

The Community Housing Fund may end up providing some modest help, and the homes it'll fund may be off limits to second-home owners, yet some 461 homes a year is a drop in the ocean compared to the 250,000 homes the Barker Review said needed to be built each year to keep prices at the level of inflation.

And without such a healthy figure of new builds, we're likely to see not only increasing prices, but more people renting and possibly more people slipping into relative poverty.