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Market musings: Housing policy from across the pond


Published: 16 January 2017 | Author: Carla Sateriale

It’s 2017 and, for many young adults in the UK and elsewhere, home is still the same place as it was in 1997. While there is an array of financial, social and demographic reasons behind this trend, most agree that the bottom line is that a lot of would-be first-time buyers face are facing a struggle to become home-owners.  

Apart from burdening older and middle-aged parents with additional laundry, young people living at home can produce a ripple effect on the wider economy in the form of mis-allocation of human capital.

Debt and young people

Having a mobile, young labour force is ideal for employers, as it allows them to attract top talent into entry level positions from a wide geographic area, rather than relying on just the nearby applicant pool. But, for many recent graduates, taking a chance on a career far afield may be a dicey proposition, as they weigh the cost of rent, transport and increasingly burdensome student loan repayments against a starting salary.

Historically, the north has been most acutely impacted by brain drain, as London has often attracted the most ambitious jobseekers. However, as renting costs have increased, even London employers are finding it harder to fill lower-level positions.

Is there a way to tackle this issue?

Believe it or not, a similar phenomenon is happening in the US. With a declining rate of home-ownership among young adults and a growing numbers of millennials choosing to live with their parents, employers in expensive cities are finding it harder to attract top talent. One area has sought to tackle this issue by piloting a programme to make it easier for recent graduates with student loans to buy their first home.

Through a programme called SmartBuy, first-time buyers with a deposit of at least 5% can choose to purchase selected properties (often one which has been possessed by the lender). After living in the property for five years and meeting all repayment obligations, a portion of the borrower’s student loans are forgiven - up to 15% of the property purchase price. So far, the state of Maryland has allocated $10 million towards piloting the programme, which is expected to help some 50 households. Maryland’s economy is heavily driven by public sector employment and high-tech service jobs. It’s thought that the programme could potentially pay for itself as the subsidy would help encourage beneficiaries to purchase new white goods and improve their property, thereby boosting sales tax and property tax receipts.

Incentives to move

Although it’s still early days, so far the initiative enjoys popular support. And why wouldn’t it? If companies can be incentivised to relocate to a different region through tax credits, why shouldn’t productive workers likewise be subsidised to move?

I’m far from saying that this is a perfect solution. One could easily play devil’s advocate and argue that, due to moral hazard, perhaps the government should deter people from taking out massive student loans rather than forgive them. Nonetheless, this is a policy solution worth pondering, as it simultaneously addresses several issues which are inextricably linked: housing, human capital, and debt.

As publication of the long awaited housing white paper draws nearer, perhaps now is the time to reflect on the many possibilities for innovative thinking in the housing space - and to remember that the housing crisis isn’t a uniquely British problem.