As the pre-budget report looms, how can the government help the housing market??

Improving the planning system, reforming property taxation and strengthening the HomeBuy scheme would all help, say our experts

There is a school of thought that reckons the planning system for the housing market could be improved by taking more account of market information when making decisions regarding major developments.

Planning at regional and local levels could be improved by making better use of information about prices and preferences as they affect the density of developments or the composition of social housing in residential development schemes. And greater certainty and speed would help, though not at the expense of making bad decisions.

Also, it would be good to see the reform of property taxation high on Gordon Brown’s agenda to mitigate house price cycles. Any reform of Council Tax, following the review by Sir Michael Lyons, should consider the impact it could have on the housing market.

With the pre-Budget report due on December 5 it will be a wonderful Christmas present for home owners if the government raises the Stamp Duty threshold at least in line with inflation, while promising to undertake a full review of property taxes such as Inheritance Tax and Council Tax.

More creative possibilities for Stamp Duty include a temporary abolition for the new build market to generate more house building as well as stimulate demand for new build property by first-time buyers and house movers, and a one-off increase in the threshold for residential properties in London and the South East to recognise the price differential in these areas as compared with other parts for the country.

Clarification on plans for the launch of self-invested personal pensions due next April would also be good so the property industry can plan ahead with the Financial Services Authority, which won’t be able to regulate this market until April 2007 at the earliest. On the surface, last year’s rise in the Stamp Duty threshold to 120,000 seemed a welcome step forward for the housing market, but given that the average price of a property in London is now 300,000, further alternatives must be considered to provide access to affordable housing for all.

With more people settling in London than ever, key workers and first-time buyers looking to live in the capital are finding getting onto the housing ladder increasingly difficult.

The government, via the Office of the Deputy Prime Minister, has recognised the need to tackle barriers to home ownership by publishing proposals to help with its HomeBuy scheme. This is an opportunity to provide dynamic solutions to affordability problems. But the government has done little so far to address the concerns of lenders involved in the most innovative part of the scheme – the proposed public private partnership.

Furthermore, the HomeBuy scheme potentially exposes the government to high costs and possible volatility in the housing market, and the taxpayer may have to bear the cost of any losses.

The good news is that HomeBuy has the potential to tackle some of the difficulties faced by currently excluded consumer segments. To make the scheme work the government should protect taxpayers and foster lenders’ participation by taking out third party insurance, effectively removing risk from the scheme. Ultimately, the scope of the scheme will depend on the government’s appetite for risk and its commitment to encouraging responsible lending.

Further consultation and discussion with experts from relevant sectors of the financial system on structuring affordable housing programmes should be encouraged to ensure efficient use of taxpayer funds.