Housing and the credit crunch follow-up report

14 July 2009

The Treasury’s Asset-backed Guarantee Scheme (ABS) - the key means by which the Government aims to get the mortgage markets moving again - seems not to be working, says the Communities and Local Government Select Committee in a report out today.

If the Government is to meet its housing targets, further steps must be taken to ensure that house builders can sell the homes they build, say MPs in their latest report on housing and the credit crunch.

Following up on a previous report published earlier this year, the Committee took new evidence recently from mortgage lenders. Launching the Committee’s conclusions Dr Phyllis Starkey MP, Chair of the Committee, said:

"The Committee strongly supports the Government’s retention of its house-building targets, despite the credit crunch, because they continue to reflect known needs - as confirmed by recent research by the National Housing and Planning Advice Unit. But house-builders simply will not build homes which they cannot sell.

"We welcome the additional investment the Government has made in building homes for social rent and in low-cost home ownership. But this won’t on its own be enough to meet demand. The availability of private mortgage finance is crucial, and the key to unlocking that finance is the Treasury’s Asset-backed Guarantee Scheme.

"In its current form the ABS is a leap that reaches across only half the chasm: impressive, but doomed to fail. If we are to meet house-building targets, then CLG ministers and senior officials must maintain pressure on the Treasury to bring forward new measures to get the mortgage markets moving."

The report also underscores the importance of retaining skills and capacity in the house building sector, to avoid repeating the problems of the last recession after which it took ten years to rebuild capacity in the construction industry. The Committee calls on Government to monitor the situation closely and assess whether more must be done to maintain that capacity.

Lastly, the report questions the direction of an effective long term housing policy for the UK, particularly with regard to the balance of housing tenure and the presumption that owner occupation must increase. Commenting on this issue, Committee Chair Phyllis Starkey said:

"Last year, in a report on the supply of rented housing, we called on the Government to challenge the perception that to rent is 'second best'. Whether from necessity or choice, significant numbers of people rely on private and social rented housing - and may continue to do so for much of their lives. Their needs and aspirations are every bit as important as those of home owners.

"Current economic circumstances only underscore the relevance of this argument. Yet for thirty years Government policy has focussed on promoting home ownership, with insufficient attention given to the rented sectors. We now need a vigorous debate to review this approach and formulate a more coherent vision to guide effective housing policy and investment into the future."

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