Will Gordon Browns plans affect house prices in the future?

Gordon Brown's hand has been on the economy tiller for ten years but now that he is prime minister, how will some of his reforms affect the housing market?

During the ten years in which Gordon Brown oversaw the economy as Chancellor, we have experienced a sustained growth in the housing market, fuelled by some of the lowest interest rates in recent times and the highest levels of personal debt in UK history.

Over the last year, however, things have changed. Interest rates have risen five times, and may rise further and Gordon Brown has been publishing some of his ideas about solving the “housing crisis”.

The affordable housing problem

Gordon Brown recently stated that tackling the shortage of affordable housing is his main priority and has promised to build three million new homes by 2020.

This equates to 250,000 new homes built every year over the next twelve years, which matches the property building booms of the 1950's and 60's, year on year.

So many new houses have to be built on land, and the proposal is that they are built on brown field sites and surplus land, and a Planning Bill is being prepared to facilitate the development of such sites.

It is not just unused military camps and derelict factories that will be built on though. Allotments and spare land adjoining large house will be identified as prime targets for development. In filling will become rife and the character of towns and villages changed – improved, even.

What about the green belt?

Although the details have not been published yet, Hazel Blears, the Secretary of State for Communities and Local Government, has reused to rule out building on green belt land.

For those who live in village locations overlooking fields in the green belt, there must be a risk that their neighbouring land will be assigned as suitable for new housing, and some of it may be public “social housing”.

As well as damaging the rural environment and changing the character of villages forever, there is the possibility of reducing the prices of homes which currently enjoy desirable views and locations.

Of course affordable housing for villagers who currently can't afford to buy, may mean a welcome foot on the property ladder without having to move away, but will they be attracted to low cost housing?

If homes are to be affordable, then they must be built to low cost specifications, probably in high density developments to maximise the use of the available land.

The presence of these new affordable housing estates on the outskirts of villages and towns will almost certainly reduce the desirability of existing houses, and reduce their value accordingly.

First time buyers

First time buyers have always struggled to gain a foothold on the housing ladder and its not just in the UK. In Germany, for example, around 30pc of the housing stock is rental property.

Germans expect to rent until they can save enough to purchase their own home. Over there, being a tenant is an accepted part of life.

Our preoccupation with property ownership is driving this need for affordable housing, however first time buyers will still struggle to buy their first home in desirable areas and those least affected by such large scale housing development.

In general, the price of new houses sold to their first owners fall when other new houses are being built in the vicinity. A first time buyer struggling to meet their mortgage payments would be horrified to see their investment dwindle.

Will house prices fall?

The house market operates according to supply and demand. Currently demand exceeds supply driving house prices upwards.

Building 250,000 new houses each year must bring supply and demand back into balance so it seems sensible to predict that house prices will not show the same increases in the future as we have experienced over the last few years.

Although this can be seen as a good thing, the eleven million property owners holding increasingly expensive mortgages will not thank a general slow down in house price inflation.

Those seeking to bolster flagging pension schemes with investments in buy to let properties may also suffer in the long term while the Government implements this housing scheme.

It can be envisaged, however, that existing houses unaffected by this wholesale development may become more desirable and therefore more costly in relation to those close to these new communities.

This may well distort the property market with the government intervening in the market mechanisms at the affordable level and creating a yawning gap further up the ladder.

Should the Government implement Gordon Brown's proposals, this number of houses being built on various surplus land over the next twelve years, will permanently change villages and towns.

This volume of new houses will also change the dynamics of the housing market – for good and bad, depending on your point of view.