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Blue Thought Bubbles The ASC Blog

Bank of England v Treasury

Published 12/12/2011 00:00:00

Do Businesses really need another government scheme?

You got to love it when our learned leaders contradict each other in public. The battle ground this time is house ownership. The Bank of England calls for less owner occupation and the Treasury has announced a few days ago (a few weeks ago) that they would be spending £400 million (sic!) to kick start house building in the private sector. In addition, they want to introduce a mortgage indemnity scheme.

So who is right?

Bear in mind that in recent years there has been an increase in private sector rental because people cannot afford to buy - but rents are now so high that there is now a question of affordability.

So, is property development not a simple question of supply and demand? But then who controls supply - If it was house builders there is no question they would increase the supply to meet the demand but I think the big problem is our planning laws which restrict the supply of land for house building. There are loads of unused Brownfield sites as well as other unused sites nationwide, but go and try to get planning permission to build some residential units. The reason why there is such a low supply is simply because the cost of acquiring a property with planning permission is approximately 35% of the end value. This is clearly something to be done by the Government rather than arguing with the Bank of England.

In addition if you decide to build a development will you be able to get the finance? The simple answer is no you won’t. This is because most banks are so risk averse that they will not support a development scheme. So again there is food for thought for the Bank of England – provide conditions that lenders will be able to provide sensible finance for property development.

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