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OBR: FirstBuy Direct will have little impact

  • 29/03/2011
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OBR: FirstBuy Direct will have little impact
The Office for Budget Responsibility has told the Treasury Select Committee (TSC) that FirstBuy Direct will have little impact on improving the housing market, warning supply will fail to meet demand.

Its concern over the Chancellor’s scheme echoed those voiced to the TSC by economists last week and it argued that greater planning reform had the potential to make the greatest impact on the market in the long term.

Stephen Nickell, a member of the OBR’s main steering committee, said: “The credit crunch is restricting mortgage availability for first-time buyers in a very serious way and there doesn’t seem to be much sign of that changing soon. I would argue that changes made so far will only have a relatively modest impact on prospects for the housing market.”

He added: “Given the shortage of houses – the low level of housebuilding relative to a rise in the number of households – helping first-time buyers just raises demand for housing and will be reflected in prices.

“Real help to first-time buyers, that is allowing more first-time buyers to move into houses, can only happen if there are more houses for them to move into. If there aren’t, then help for first-time buyers equals rising prices.”

The OBR said that additional help from the government in the construction sector would help combat the issue.

“The binding constraint over the last two decades has been planning restrictions. If that can be eased, that’s the best prospect for housebuilding and therefore the construction sector and, in the long term, first-time buyers, because there will be more houses and a better chance of moving into them,” explained Nickell.

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