The Tories' affordable-housing plan is a middle-class giveaway

IN THE past 30 years the rate of homeownership among 25- to-34-year olds has fallen from 60% to 40%; the drop among younger Britons has been even bigger. To stop things from getting even worse, on October 7th David Cameron, the prime minister, pledged that by the end of this parliament 200,000 “starter homes” would be built. Is it a sensible plan?

Each year in England about 50,000 extra “affordable” homes are constructed. The definition of affordable covers a range of different tenures, but encompasses dwellings that in some way offer below-market rents or prices. Local authorities cajole housing developers into building cheaper housing as a condition of letting them build at all.

What seems like a policy to help low-income households has in recent years taken on a pro-middle-class hue. For instance, “social-rent” dwellings—housing owned and managed by local authorities or social landlords, and typically rented out at less than half the market rate—form an ever-smaller proportion of the annual affordable-housing build. In 2010-11 39,000 social-rent dwellings popped up; this slumped to 11,000 in 2013-14. Funding cuts are to blame: from 2008-11 social-housing grants covered about 40% of the total cost of development, but in 2011-15 they accounted for just 14%.

As new social-rent dwellings have withered, so the “affordable-rent” sector has bloomed. Under this model of affordable housing, local authorities and private landlords can charge rents at about 80% of the market value. With lower grants from the government, they are economical only if tenants meet a large chunk of the cost of construction. But this pushes new government-subsidised housing out of the reach of the poorest. With average private rents in England at £600 ($920) a month, average rents in the affordable-rent sector (at about £480 a month) are too dear for Britons in the bottom income-decile, who have a monthly disposable income of about £700.

How will Mr Cameron’s push for starter homes change things? The number of affordable homes available to buy (as opposed to being purely to let) will need to increase from 15,000 to 50,000 a year. To make that happen, local authorities will need to pare back regulations that make it difficult for housebuilders to build affordable houses for sale. The details of what will change are unclear, says Patrick McAllister of Henley Business School.

It is clear, though, that boosting the supply of affordable homes to buy will have unhappy distributional consequences. There is no reason to expect the rate of construction of affordable housing to increase; if so, more homes to buy means fewer to rent. This is a problem for low-income families. They will struggle to cobble together a deposit and they are also more likely to be offered a higher interest rate on a mortgage. The government is capping the maximum sale price of a starter home at £450,000 in London and £250,000 elsewhere; housebuilders are unlikely to build at prices much below that, given high demand and the cost of land and construction. Mortgage repayments on such homes will be far higher than are average rents in the social rented sector (see chart). As a result, poor households may find it even harder to find a place in Britain’s affordable-housing market.