The Help to Buy Debate: Is this why home price averages are climbing

Many like to criticise the Help to Buy plan, alleging price increases result. But others disagree: most buyers are outside of London, new to ownership.

There is a popular argument circulating in the United Kingdom that George Osborne's Help to Buy plan is causing home prices to rise - and rise rather quickly. From several sides, claims that the programme designed to allow new buyers their first step on the property ladder is in fact fuelling high demand that is greater than the supply and consequently pushing up prices.

That is a flawed argument, posit others. An easily provable point is that the housing supply has been limited for quite some time due to underbuilding during the recession (and before it as well). Also, that the price rises are skewed by the situation in London, where foreign buyers pay cash for £4 million homes just for their children attending university there.

Investors in homes, working through alternative investments in land, know that homes are selling everywhere including outside London. And that if nothing is built, demand will only increase.

Financial Times opinion writer Huw van Steenis made several points in a May 2014 article that suggest that Help to Buy in fact has been a success with little downside. His observations include:

• From mid-2013 through mid-2014, housing starts are up 31 percent. That does a good job at increasing inventory, as homebuilders are now confident that what they build will be bought by middle class workers, throughout the country and away from London.
• New homes being bought are about one-third by Help to Buy and two-thirds by traditional financing. But research conducted by investment firm Morgan Stanley says this portion attributable to Help to Buy will rise to 40 to 55 percent by 2015.
• Workers of modest income make up 95 percent of Help to Buy users, as 80 percent of homes purchased under the plan are for properties that sell at about one-third less than the national average home price.

Van Steenis concludes that there remains a shortage of homes, that the banks still need to apply stringency in making loans (for example, limit it to home values of less than four times the borrower's income), and that banks should be stress tested to ensure they can weather price drops of up to 35 percent. He adds that freeing up more land for building should also be part of the national strategy for alleviating the housing crisis.

Of course, the National Planning Policy Framework, which is being implemented at the local level, plays a very important role in increasing housing stock. The web publisher Housing.co.uk noted in 2013 a critical provision of the NPPF plan, which pertains to how local planning authorities (LPAs) should react to market demands. The language of the Framework basically instructs LPAs to heed "market signals," looking at housing affordability, land prices and the relative degree to which land is allocated to residential development.

In other words, says Housing.co.uk, local authorities are responsible for ensuring that prices do not become unaffordable. If allocating more land to development can bring home costs down to the affordable level, then so be it.

Strategic land investment funds work with this equation. They look at market needs, identify land where home construction would be optimal, purchase the land (where sellers are willing), then develop the site. Increasingly, "development" is about creating infrastructure such as streets and utilities; then they sell the ready-to-build lots to actual homebuilders.

Individuals who invest by way of property fund managers take advantage of these sets of circumstances, often achieving appreciable asset growth. But such individuals should do so under the advisement of an independent financial advisor, recognising how the specific components of land investments need to fit the investor's wealth management strategies and objectives.

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Investors in homes, working through alternative investments in land. Strategic land investment funds work with this equation. Individuals who invest by way of property fund managers take advantage of these sets of circumstances, often achieving appreciable asset growth.