Housing Market

– in the House of Commons at 12:00 am on 17th May 1995.

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Motion made, and Question proposed, That this House do now adjourn.—[Mr. Lightbown.]

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield 10:04 am, 17th May 1995

I am delighted to have the opportunity to debate and discuss the housing market. Macclesfield borough is a prosperous and successful borough in the north-west of England and, following the local elections a fortnight ago, is the only borough that has overall Conservative control north of a line from the Wash to the Severn. It is an area where people want to live and where people want to move to live, where businesses want to expand and where new businesses want to locate. So, quite clearly, it is a successful area.

But I know that hon. Members on both sides of the House will agree when I say that housing is fundamental to all 651 constituencies in the United Kingdom, and problems that face home owners affect all 651 constituencies.

I want to start the debate by quoting Lady Thatcher, now in another place, from her book "The Downing Street Years", page 698. She writes: I was … acutely conscious of what interest rate changes meant for those with mortgages … borrowers … lives … can be shattered overnight by higher interest rates. My economic policy was … intended to be a social policy. It was a way to a property-owning democracy. And so the needs of home owners must never be forgotten. It is because I believe that my Government have forgotten about the importance of home owners that I have asked for this debate today.

Hon. Members on both sides of the House will be aware that my interest in the construction industry is of many years' standing. So concerned have I been by the lack of attention given to its problems and its potential that two years ago I formed, with all-party support, the manufacturing and construction industries alliance in Parliament.

This debate, which I have managed to obtain this morning, has also been warmly welcomed by the House-Builders Federation, the Council of Mortgage Lenders and the Building Societies Association, which all accept the fact that the health of the housing market is now so parlous that to fail to call out for understanding and support could be fatal.

The manufacturing and construction industries alliance, which I have said has all-party support and backing from every sector of industry, including trade unions, exists to move the needs of manufacturing and construction further up the public, political and parliamentary agenda.

Never has that been more necessary than it is today. The housing market has been in recession in the south of England since August 1988 and in the north since around mid-1990. As Joe Dwyer, the group chief executive of George Wimpey plc, told the alliance at its most recent presentation here in the Palace of Westminster immediately following the latest Budget, the housing industry still shows no sign of sharing in the undoubted move out of recession that much of the rest of our economy is now experiencing. That was not my view; that was the view of somebody uniquely, over many years, involved in the housing and construction industry here in the United Kingdom.

While the United Kingdom was in the exchange rate mechanism, things were especially difficult, because the very high interest rates that then prevailed deepened the recession, and the housing market could never recover in those circumstances.

However, since our happy escape from the ERM on "White Wednesday", as it has come to be called, we have been able to enjoy greatly reduced interest rates. Although, sadly, the Governor of the Bank of England appears willing to put at risk the fragile recovery that we are experiencing, there has indeed been a steady improvement in our economy—at least the part of it that is involved in exports.

Ministers have consistently told us that there would also be steady improvements in the housing market. However, after a brief improvement in late 1993 and early 1994, the housing market has again faltered. This year, there are fears that it will do far worse than falter. All the evidence that I have been able to find suggests that the housing market is far weaker than expected and that Ministers cannot—dare not—complacently await its improvement.

Estate agents report that, in the period to the end of April, their sales are almost 20 per cent. less than in the same period last year. House builders, who comprise about 11 per cent. of the market, are maintaining their share of the market, but continue to sell at about 4 per cent. below 1994 levels. Therefore, not surprisingly, total building society new lending is down. For example, the Halifax building society reports that prices are beginning to fall yet again. That is because fewer sales are bound to weaken prices.

Photo of Oliver Heald Oliver Heald , Hertfordshire North

Obviously, the evidence is mixed, but in East Anglia the first quarter of the year shows an increase in prices of 1.6 per cent. overall, and there has been an increase of 4.3 per cent. in prices of new properties. In fact, there has been an increase in new property prices in East Anglia in every quarter since the end of 1993. Does my hon. Friend believe that the evidence is slightly more mixed than he suggests?

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I am not suggesting for a moment that there are not pockets of bright light and of encouragement. I can only go on the information provided to me by house builders, by the House-Builders Federation, the Council of Mortgage Lenders and the Building Societies Association—people who are uniquely in a position to provide that information—who say that the market is faltering and that overall, things are bleak for the housing sector and for all those supplying those parts of the economy, which are so important to this country.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I will not give way again at the moment. I want to develop my argument.

The National House-Building Council reports that new house registrations—that is, new building starts—are 17 per cent. down in the first quarter, and the Brick Development Association, which should know what is going on, advises me that brick deliveries in March were 8 per cent. down on those for March 1994. That is consistent with the major house builders, who say that they are laying off bricklayers and cutting back further on production in direct response to falling sales.

On Friday night, I spoke at a dinner in the Moat House hotel at Wilmslow. After my speech, I was asked a question by a young executive, a young man from Merseyside involved with training. He said that he was deeply worried about the failure to provide jobs for young people after they had received basic training from the various schemes offered by the training and enterprise council. He highlighted especially the problems of the construction industry, which in the past has been such a major employer of young people and semi-skilled people in the Merseyside region.

The weakness of the housing market is starting to knock on to employment and spending power in the domestic economy as a whole. Building workers and building materials, as we know—and as my hon. Friend the Member for Chorley (Mr. Dover) will be more than aware—are only the start. Falling housing transactions are widely reported by retailers as a key factor in the undermining of certain markets. White goods, furnishing, timber, carpets, curtains and do-it-yourself—all are affected.

No one can claim that the condition of the housing market does not fundamentally matter to the economy and to employment in the United Kingdom. It is of great significance to the recovery of the domestic economy and it is of massive significance to the fortunes, dare I say it, of my Government, the Conservative Government.

In my opinion, the Conservative party is, and always has been, the party of home ownership. We can be rightly proud of the fact that we have expanded home ownership since 1979 from about 54 per cent. to 67 per cent. of households. When we ignore the problems of the housing market, we ignore the problems of our strongest supporters and, dare I say it, their greatest asset.

Photo of Mr Tony Banks Mr Tony Banks , Newham North West

Does not the hon. Gentleman find it disturbing that so much of our country's economic prosperity has to be based on the housing market? I can well understand the way in which it affects the housing market, but the feelgood factor is absent precisely because of the facts that the hon. Gentleman is talking about. As the hon. Gentleman is a great champion of manufacturing industry, does he agree that it would be better to base our wealth and prosperity on that sector rather than on prices in the housing market?

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I cannot but agree with the opinion expressed by the hon. Gentleman. Indeed, I am not in favour of people investing all their money, all their savings, in property. I was deeply unhappy about the property boom of the late 1980s, resulting from decisions of a Conservative Chancellor, who allowed property inflation to roar away. That factor contributed to many of the economic problems that we experienced shortly thereafter. I want people to be encouraged, by fiscal and other measures, to invest in manufacturing in this country. As the hon. Gentleman knows, I want a massive expansion of our manufacturing base, because only when we do so shall we have a stable, successful economy in the long term.

Every time there is hope of a housing recovery, the Governor of the Bank of England mistakes that for overheating in the economy and urges the Chancellor of the Exchequer to increase interest rates, thus undermining confidence among would-be purchasers even further. Every time he does that, he pushes more home owners and more of the Government's traditional supporters into negative equity.

More worrying still have been the policies pursued by some of my right hon. Friends and the effect that they have had on the whole housing market. The Chancellor of the Exchequer has reduced mortgage interest relief at source for two successive years. He has in that time increased interest rates three times, although I must and do sincerely congratulate him on resisting the siren calls from the Bank of England to do so yet again two weeks ago. I say to him, and make this comment very forcibly, long may he continue to resist, and long may the pound continue to confound those who criticise the Chancellor's decision.

Unfortunately, my right hon. and learned Friend the Chancellor of the Exchequer pretends that those changes in his policy, regarding MIRAS and interest rate increases, are not important to the housing market. He regularly tells house builders that the cost effects of those measures are so trivial that they are not responsible for the weakness of the housing market. In my opinion, that position is untenable, especially as the start of the current dip in the housing market coincided exactly with the first cut in MIRAS in April 1994 and with the beginning of the psychological war being waged by the Bank of England against low interest rates.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I shall give way in a moment, but I want to develop my argument further.

The effect of those policies has been a reduction in spending power—as was intended—and a blow to confidence in the housing market.

To add to that, the Secretary of State for Social Security has published proposals to limit mortgage interest support for sick and unemployed people. Every housing market commentator and expert whom I have found and read about has condemned those proposals as being bound to eliminate marginal home buyers from the market and to put some existing and future home owners at risk. They threaten further extension of home ownership to marginal groups, something that I know is dear to the heart of our Prime Minister.

Photo of Mr David Nicholson Mr David Nicholson , Taunton

I am listening to my hon. Friend's arguments with substantial agreement and considerable admiration, but, given the fact that, for the past two years, interest rates have been lower than for most of the past 15 years, would not a longer-term benefit of cuts in MIRAS be the avoidance of a return to the position described by the hon. Member for Newham, North-West (Mr. Banks), where people could expand their capital only by investing in housing and not, as my hon. Friend wants, by investing in manufacturing industry?

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

There is some sense and rationale in my hon. Friend's view, but home ownership is fundamental and a way for people to invest in their future. As I said, I do not want second and third houses, which is what resulted from mistaken policies that were implemented some years ago.

We cannot continue to treat the housing market and home owners as we are now. We ignore their problems at our peril, both economically and—perhaps this has more effect on Treasury Ministers—politically. Economically, we must look to a significant strengthening of the domestic economy, and that must be soon. Exports may be benefiting from the devaluation of the pound, made possible by, for example, our exit from the exchange rate mechanism, but the domestic economy is fragile and in danger of faltering. Let us not forget that nearly four times more households are employed in the domestic sector, sadly, than in our export-led economy. I say to my colleagues in the Treasury team that it is the domestic economy and the businesses in it that will produce the employment and the profits that are needed to increase tax revenues and so reduce the public sector borrowing requirement and thus the budget deficit.

Photo of John Spellar John Spellar Shadow Spokesperson (Northern Ireland)

May I take the hon. Gentleman back to marginal purchasers in the housing market? Is not one of the fundamental problems in the housing market that a huge swathe of the employed population no longer feel secure in their employment? They feel threatened by the constant references to there being no secure jobs, as if that were a virtue. They are considerably concerned by the Government withdrawing cover in the event of their becoming unemployed. Other major purchases result in a long-term commitment on payments, for example, in the automobile sector, which as we know is also in recession in the domestic market—[Interruption.]—not production, if the hon. Member for Sutton and Cheam (Lady Olga Maitland) will listen to what I am saying. Sales of cars are in a serious position in the same way as sales of houses, because no one feels secure in making a long-term commitment.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

One or two of my colleagues may not like me for saying it, but that is an accurate assessment of the position. It is one of the reasons why we do not have a feelgood factor. On many things in the House, there can be consensus and common ground. I am sure that, in many areas relating to housing, there is common ground between hon. Members on both sides of House.

Any upturn in the domestic economy is being retarded by the housing market weakness. The inevitable consequence of that will be a shortfall in income and corporation tax revenue, making any strategy of tax cuts in the next Budget difficult, if not impossible. Thus, there is a clear link between the weakness of the housing market and the Government's ability to deliver their key policy objective before the next general election.

I say to my colleagues on the Treasury team that, politically, we cannot afford to alienate home owners or to treat their fears or aspirations with contempt or indifference, yet sadly the Government are widely perceived to be doing just that. Voices have been raised by mortgage lenders and house builders complaining that the Government are turning their back on home owners and home ownership as a policy.

How can we have let ourselves get into a position in which articles such as this appear? One in the Daily Mail of 3 May had the headline: What do the Tories have against the hard pressed homebuyer? Another in The Times of 5 May stated: From subsidy to subsidence: a Tory approach to housing—Janet Bush says the Government is merely aggravating a market already deep in trouble. That is a sorry state of affairs. Something must be done. I fear, however, that the doleful noises from the Treasury and the Bank of England about the consequences of doing something have frightened the Government into silence. Threats of a return to inflation seem to paralyse us all like rabbits in a car's headlights, yet we all know what happens to the rabbit thus paralysed with fear: he gets squashed anyway. We cannot continue to be frightened of doing what is obvious and necessary by an irrational and obsessive fear of inflation.

Expert opinion is now clear. The housing market is so depressed that a significant increase in transactions is vital immediately to stop it deflating throughout the rest of the year. There is a risk of price falls, now being reported month on month throughout the year by the building societies. I ask my Conservative colleagues—and perhaps colleagues on both sides of the House: how do they think their constituents will react to further falls in house prices?

The Government simply cannot expect to survive such a scenario. That last happened in 1992 and was brought to an end by interest rate reductions after our exit from the ERM. No similar bolthole exists for us today. There is not only a risk of deflation, leading to more home owners in negative equity, but, conversely, there is no risk of a housing market recovery triggering the return of the inflation that Eddie George claims wakes him in the night. We cannot afford to allow our entire economic strategy to be run by a single-issue fanatic sitting in Threadneedle street.

As The Sunday Times said on 30 April: The Prime Minister … appears unaware of the trap his government is falling into: 'The prize of keeping the economy growing steadily, with low inflation, is a prize we have not seen in the past,' he says … 'We are here,' he says, 'for the long run' … This week's local elections will confirm that it would take only the rash or brave to bet on Mr. Major's long-run hold on power. The more the chancellor, egged on by Eddie George … succeeds in slowing the economy, the larger the government's budget deficit and the more difficult for 'prudent' tax cuts to be announced before the election. Without them, the Tories' already slim chance of electoral salvation can be written off. Again, that is a fairly accurate assessment of how many people feel.

On 30 March this year, I expressed my concern in the House to my right hon. and learned Friend the Chancellor about the crisis in the housing market. He denied that there was any crisis, but did concede, I am pleased to say, that there was a weakness. He went on to say that, regardless of that, any artificial stimulus would have even worse consequences, so he would do nothing but await a natural recovery. I wholly reject that view and would argue that it is the Government who, far from giving artificial stimulus, are kicking the housing market by specific measures that are further weakening it, when it is already facing a serious crisis.

In short, confidence in the housing market continues to suffer as a direct result of a series of Treasury-inspired blows to its head. Measures are urgently needed to avoid the crisis worsening. They must not be half-hearted, such as another stamp duty moratorium. They must put more purchasing power and confidence directly into the housing market. Above all, they cannot wait until the Budget in November. Measures delayed until then will not take effect until next April and, by then, the damage to the Government may well be irreparable. The only step open to the Chancellor is partially to reverse his cuts in MIRAS. He must specifically recognise the problems faced by first-time buyers and the significant increase that they will face in entry costs and in higher mortgage payments, especially if he should give in to the Governor of the Bank of England next month and allow interest rates to rise again.

I put it to the Under-Secretary of State for the Environment, my hon. Friend the Member for Hertfordshire, West (Mr. Jones), that the Chancellor must immediately announce a package putting MIRAS up to £50,000 at the standard rate of 25p in the pound for first-time buyers. That is a constructive proposal. He should not time-limit it, but he should retain the option of withdrawing it once the economy and the market have responded to that stimulus. Such a measure would provide him with an excellent and effective regulator, which would be much more sensitive than interest rates, should the housing market need to be reined back at some future date.

To assist in that move and to restore confidence to first-time buyers and right-to-buy purchasers, the Secretary of State for Social Security should quietly and discreetly ditch the electoral millstone of his proposals to restrict mortgage interest support for the sick and the unemployed. My right hon. Friend the Secretary of State has many good reasons for doing so and I understand that the unpublished study on mortgage arrears and repossessions, which is currently sitting in the Department of the Environment, provides ample evidence of the need for a thorough reappraisal of the proposals that my right hon. Friend has announced.

The housing market stands at a crucial crossroads, and so do our economy and the political future of the Government. All are inextricably linked. Let us recognise that and listen to what the electorate told the Government on 4 May. Let us be clear—the British housing industry is among the best in the world. Hon. Members on both sides of the House know that, not least my hon. Friend the Member for Chorley, who has wide experience of the industry. It offers home owners a wide range of high-quality products at prices that are extremely competitive. Affordability is at good levels.

The main factor that is missing from the equation is confidence, the first emerging breaths of which are repeatedly stifled by policies from the very Government who, in the past, have sought to nurture home ownership as a major electoral asset—and it has been such an asset. This is a bizarre, reckless and, ultimately, politically unsustainable position and I hope that in the coming months the Government will realise the importance of home owners and the need to encourage home ownership, and that policies to encourage and stimulate it will be introduced.

Photo of Mr Tony Banks Mr Tony Banks , Newham North West 10:32 am, 17th May 1995

I congratulate the hon. Member for Macclesfield (Mr. Winterton) on a characteristically robust speech. He is one of those hon. Members who speaks the truth as he sees it, which is probably why he has more admirers outside his party than within it.

Housing is a massive problem in my constituency and the hon. Member for Macclesfield identified the problem in other constituencies. In the London borough of Newham, it is at crisis proportions. More than 60 per cent. of all my case work involves housing in the private and public sectors, although essentially we are debating the private sector this morning.

It is difficult to be precise, but the best figures that I have been able to produce show that nearly 60 per cent. of private sector dwellings—about 26,000 in the borough—are unsatisfactory. That is twice as high as in Greater London as a whole. It is distressing to note that the percentage of unsatisfactory dwellings has risen since 1979.

In the latter part of the 20th century it is amazing to note that some 2,000 households in my borough still have outside WCs. I remember outside WCs when I was a young lad—they were a useful way of using up old newspapers, with the nail on the wall and so on. I remember going out in the cold: it was an unpleasant experience and can be spooky for a young kid. The idea that in 1995 2,000 households in my area of east London still have outside WCs is unacceptable. A total of 1,200 have no access to a bath. Overall 3,200 households in the private sector in Newham do not have exclusive use of either a bath or an inside WC.

Photo of Lady Olga Maitland Lady Olga Maitland , Sutton and Cheam

I am listening with interest to the hon. Gentleman's remarks about houses with outside lavatories. Will he confirm that people are entitled to a grant to ensure that they have inside sanitation?

Photo of Mr Tony Banks Mr Tony Banks , Newham North West

No doubt the hon. Lady speaks with great personal experience of outside dunnies. An outside WC is one of the qualifying factors for a grant as is the absence of an inside bathroom—[Interruption.] The hon. Lady has asked the question and is now sitting there answering it, no doubt to her satisfaction but, unfortunately, not to the satisfaction of the rest of us who are trying to take a more objective view. As a result of various cuts, there is no money for improvement grants and there is an enormous backlog in the London borough of Newham. That is one of the complaints that I intended to make. The absence of an inside bathroom or WC is one of the highest qualifying factors for an improvement grant, but if the hon. Lady cares to come to Newham to see the backlog of those who are still waiting for such grants—and Newham is one of the most generous boroughs in the country for making improvement grants—she will realise the problem that we face. If we could solve the problem as easily as the hon. Lady suggests, does she not think that we would have already done it, for heaven's sake? I would not be here complaining and getting myself worked up so early in the morning because of the hon. Lady's facile intervention.

I was about to say something constructive but it has now gone out of my mind. I was going to comment on the fact that the number of houses without inside bathrooms or lavatories has declined since 1981 precisely because of the improvement grants that the London borough of Newham has been able to offer, despite which we still have the highest figure in Greater London.

The problem always comes down to economics. Newham is a poor area with a large low-income sector. A total of 50,000 people in the borough are on income support, many of whom are caught in the poverty trap. Two types of owner suffer disproportionately—the elderly and those with large families. I find it distressing and disgraceful to have to bring such statistics to the House's attention at this stage of our development. A total of 65 per cent. of elderly owners and 58 per cent. of owners with large families live in unsatisfactory housing.

One third of owner-occupiers in my borough have incomes of less than £10,000 a year and more than two thirds have incomes of less than £20,000 a year. Twenty two per cent. of owner-occupiers pay more than 40 per cent. of their net household income in mortgage payments. It is not surprising, therefore, that 10 per cent. find it difficult to meet mortgage payments and a further 19 per cent. find it very difficult. One in eight is in mortgage arrears and an estimated 1,500 households are in serious mortgage arrears.

The hon. Member for Macclesfield mentioned mortgage tax relief being increased. I am not happy about that. I can see what he is trying to say. There is a real problem in the housing sector, but we do not want to encourage taxpayers' subsidy in the owner-occupier sector. All those who have observed the housing market have said that we should reduce mortgage tax relief; therefore, the Government are doing something that other parties would support in general terms. Many devices would boost the housing market and they should be encouraged. For example, the Government could allow local authorities to spend far more of their accumulated receipts from the compulsory sale of council housing. That would give the enormous boost to the housing sector about which the hon. Member for Macclesfield is concerned. I am concerned that we should seek real growth in our economy from the manufacturing sector—the productive areas. People had a false sense of security.

Photo of Oliver Heald Oliver Heald , Hertfordshire North

The hon. Gentleman suggests that if capital receipts were available for building homes, they would in some way help the housing market, but surely the effect of the release of receipts would simply be an improvement in the construction industry. That would not help the underlying problems, described by my hon. Friend the Member for Macclesfield (Mr. Winterton), of negative equity, the lowering of prices and the depressing effect of the present situation.

Photo of Mr Tony Banks Mr Tony Banks , Newham North West

It could help for the simple reason that it would free up the whole housing market. It would produce far greater mobility.

People are trapped in substandard private accommodation that their landlords or owners are perhaps loth to improve. If people were able to move out into new public sector housing, landlords or owners would have an incentive to improve the vacant property and put it on the market or employ it in some other productive fashion.

One has to look at the housing market in its totality rather than sector by sector. The fact is that there is little movement in the housing market. People find that they are trapped in the private sector or in the public sector by negative equity or simply because there is not sufficient housing stock available in the areas or sectors in which it is most required. We need to free up the public sector far more. By doing that, we would inject far greater vitality into the private sector as well.

I am concerned that the country's prosperity should not be based on people's feelgood factor and the price of their housing. People like a bit of house price inflation because they can draw on the equity if they are in an advantageous position. That money then moves through the economy. That is precisely how the Government boosted the economy in the 1980s. We are now paying the price, as the hon. Member for Macclesfield said.

What I really want to say in my brief intervention is that I want to see more responsibility in the private sector being taken by the building societies and banks. This evening, I shall speak at the launch of the annual report of the Bow county court advice service. It is an excellent service that helps people without representation in the courts who are suffering from the possibility of mortgage repossession and eviction. Through the intervention of the advice service, many people have been saved from having their house repossessed and being made homeless.

It upsets me when people constantly tell me in my advice surgery that because of the problems in the housing market they have suffered from negative equity, run into mortgage arrears, had their houses repossessed and want the council to rehouse them. The council has a statutory responsibility, but where is the responsibility of the lenders of the mortgage in the first place?

What is the responsibility of the banks and building societies? They just tell people that they have got themselves into a bad position, repossess the house and sell it on to get as much back as they possibly can of their original loan. Negative equity normally affects the person who took out the loan rather than the person or organisation that lent the money in the first place. The lenders get their money back. The council is forced to find housing for people who have been dispossessed of their owner-occupied houses. That pressure and the lack of mobility in the public sector put even greater pressure on local authorities.

I want banks and building societies to face up to their responsibilities. They lent the money in the first place and therefore they should take greater responsibility for trying to keep people in their homes in the private sector rather than throwing them out and leaving the local authority to try to rehouse them.

Housing is a serious matter that affects everyone. All hon. Members are fortunate enough to be well housed, but housing is one of the rights of our people. It is absolutely crazy that, as we approach the end of the 20th century, we still have thousands of families homeless in our cities and yet we have tens of thousands of unemployed construction workers and industries that are being laid to waste because of the failure of the housing market. There surely must be a better way to organise the housing market.

I hope that the Minister will seriously address the points made by the hon. Member for Macclesfield, because, as an independent and fearless hon. Member, he quite often speaks for all of us.

Photo of Mr Den Dover Mr Den Dover , Chorley 10:46 am, 17th May 1995

I congratulate my hon. Friend the Member for Macclesfield (Mr. Winterton) on raising this very important subject, particularly at this time, because, as he knows, in politics timing is everything.

The key word is "market". Too often, the large-volume house builders—my hon. Friend mentioned Joe Dwyer, the superb chief executive of George Wimpey—assume that there is a big market out there and that they have a God-given right to keep on building more and more houses. The fact is that, at the moment, people want to be able to buy houses, especially new houses. There is a much better market for new houses than for existing, second-hand stock.

However, the house builders must give better and better value for money. Sometimes, in a depressed market, such as we have had for the past few years, home owners are in a better situation. For instance, my stepdaughter and her husband recently purchased a house at the boom of the market for £45,000 in the west midlands. They had to sell it recently for £35,000 but, on the other hand, to upgrade to a house for which they would have had to pay £93,000 or £95,000 during the boom, they have had to pay only £75,000. That has meant that the market has continued to operate. They have been able to upgrade and, indeed, they are probably slightly better off.

In the country at large, there are huge differences. In the south-east, properties in the region have decreased in value by 25 or 30 per cent. There is a slight increase in their values at the moment, but that gap will perhaps never be made up.

On the other hand, out in the more realistic world of the north-west, as my hon. Friend the Member for Macclesfield knows only too well, and especially in the north, the rise in property values took place slightly later than elsewhere and never reached the crazy, ridiculous levels of the south-east.

I accept that there has been a slight reduction in property values in the north-west and north but it has been much smaller, perhaps 5 or 10 per cent. at the maximum. That means that there has been a more realistic approach to the value of properties in those regions. People have not overcommitted themselves and the market is now moving back towards some sort of sense of reality.

As I said, it is up to the builders to give better value for money. There have been all sorts of show house give-aways such as full sets of white goods, fridge-freezers, ovens, kitchen units and full bathroom fittings, as well as sanitary goods. Those offers are absolutely essential. I praise the efforts of the house building industry in getting its act together to give a very competitive product to buyers and in ensuring that it presents that product supremely well in all show houses up and down the country.

I never fail to be impressed by the presentation that house builders give in their show houses; it is a pleasure to go into them. House builders understand the needs of buyers. I am delighted at what they are doing.

The only interest that I have to declare is as a non-executive member of the board of Cosalt plc, which is engaged in the development of a waterfront site with some old, clapped-out factories. It had to reuse the site and decided to put in a new factory and an office block for various public sector tenants and to build four phases of housing. The company put the deal together during the boom and thought that it was on to a sure-fire winner. However, since then the proposed selling prices of four or five years ago have gone down by 15 or 20 per cent. What is it to do in such circumstances? It has managed to get builders to do the demolition, construction and finishing work at much lower prices than it expected so its original construction budget will not be exceeded four or five years on, even allowing for inflation. In other words, building packages have been bought at much lower prices and that fact is reflected in the selling price.

In the private housing market, everything depends on the rate of sales—how quickly a company can construct a building and get purchasers to commit themselves to minimise its cash flow. I am delighted that the construction industry has been able to turn its operations around even in the difficult market of the past four or five years. Previously, we had runaway inflation and the industry made enormous—even unacceptable—profits. It had it too easy, but it has proved itself lively, on the ball and able to adapt to changes. It now gives better value for money but I would still criticise house builders in one respect.

Up to a couple of years ago, house builders kept buying land as if there were no tomorrow, possibly doubling land values. That was a sure-fire way of ensuring that they would be crippled by having too much land stock without being able to provide houses at affordable prices. In fact, they are their own worst enemies in many cases.

What action can the Government take? We have already heard about the difficult political situation in which the Government find themselves with only two years to go. I join those who say that the reduction in mortgage interest tax relief has been introduced too quickly. To reduce it by 5 per cent. a year on a ratchet system means hardship for some house buyers. However, whereas we reached a peak of mortgage interest rates of 13 per cent., 14 per cent. and even 15 per cent., they are now at a more realistic and acceptable 8 per cent. In other words, buyers are now paying less, even allowing for possible tax increases and the reduction in mortgage interest tax relief, and not doing too badly at the moment.

Should the Government intervene and falsely stir inflation into the equation? I do not think so, although I accept that we all feel better if the value of our house, which is our main asset, is increasing month by month, year by year. I applaud the Chancellor's courage in holding out against further interest rate rises in the past week or so. I hope that sterling's performance against the mark and the dollar confounds all the critics and that we might already have reached the interest rate ceiling of the current cycle. That would be marvellous news.

It is not in the interests of individuals, the housing market or industry for interest rates to continue to increase.

Photo of Mr Mark Robinson Mr Mark Robinson , Somerton and Frome

Does my hon. Friend agree that the purchaser needs stability and to be sure that interest rates will not change as much as they have over the years, even if it means not reducing them so far? Would it not be better if we perhaps had more stable bands of interest rates as in Germany?

Photo of Mr Den Dover Mr Den Dover , Chorley

I could not agree more. If interest rates have already reached their ceiling with three responsible and small interest rate increases in the past few months, I believe that my hon. Friends suggestion would be acceptable to industry at large, to individual home owners and the housing market. I agree that we need stable interest rates and stable inflation, which are closely linked. The Government's targets are set in concrete, so to speak, and we are pursuing and achieving our inflation rate target. We must certainly use the interest rate indicator at all times but we must bear in mind the economy as a whole, not only the financial markets.

I deal now with the definite benefits that flow from home ownership. Home ownership is an investment for a first-time buyer, someone who is upgrading and someone who has reached the peak of his housing ambitions. That contrasts markedly with the plight of people who have spent decades paying rent that has simply gone down the drain.

It is unfortunate that more people cannot be motivated early in life to get on to the house-buying ladder. Any Government action needs to concentrate on first-time buyers, who stimulate demand. I urge people to have confidence and to continue to become home buyers and owners. We can achieve the flexibility that we seek in the housing market without nationwide rented accommodation, although I am all in favour of providing council houses for those who are sick, poor or in urgent need.

I agree with the hon. Member for Newham, North-West (Mr. Banks) as I have always supported the use of capital receipts. They need not necessarily be used to build new local authority housing stock but could certainly be used to improve their existing housing stock. However, if the Government allowed much greater use of capital receipts, would the money be well spent or would it add to public spending and debt and increase interest rates? What would it be used for?

In the local elections, we received the strong message that we were wholly out of favour. Some people argue that we should remove the reins from local authorities and stop capping their spending. I believe that it would be sensible to allow them to use their capital receipts for what they want but it would mean that their deposits of capital receipts, if they have any, would not be earning interest. They would have to convince council tax payers that they were doing something worth while on their behalf because some of their income would be lost and they would undoubtedly have to increase the council tax, which might mean they lost favour.

Photo of Simon Hughes Simon Hughes Opposition Deputy Chief Whip (Commons) 10:56 am, 17th May 1995

The debate is very welcome, and I am grateful to the hon. Member for Macclesfield (Mr. Winterton), who comes from the proud county of my birth, for speaking so strongly, as people from that part of the world usually do. I hope that this will be a prelude to a longer debate in Government time as housing is probably the issue that most affects people's sense of security. Homes and jobs, which are closely related, are matters of great concern, and probably more so now than for many years. We have heard two contributions from hon. Members representing northern constituencies and I join the hon. Member for Newham, North-West (Mr. Banks) in making a contribution from the south.

My constituency begins literally a mile from here. In Southwark, housing policy across all sectors is nothing short of disastrous. There is a crisis not only for those seeking accommodation in the rented sector, but, increasingly, for those seeking to buy or who have bought. I flag up immediately those who have gone into shared ownership and find that they can no longer sustain it but cannot get out; those who bought under the right-to-buy scheme, some of whom have recently been presented with bills of £27,000 for capital charges—as the people involved are a pensioner couple with no capital, it means that they cannot pay and that their home may cease to be their own—and people who were often forced to buy, thinking that they could just manage the purchase when the market was at its highest in the 1980s but have since seen the value of their homes drop by nearly half in some dockland areas—the price of a terraced house there has dropped from over £100,000 to about £60,000 or £70,000. Their negative equity has turned into not a slight deficit but an extraordinary liability.

The practical problem for many people is whether they will be able to keep their homes as their jobs become less secure. Therefore it is urgent that we get the policy right. The phrase that came to mind, which I suppose was prompted by the VE day background to the debate, was that never have so many owed so much—not to so few, but simply owed so much. People are desperately worried about the implications of that.

We could all cite a litany of problems, but we are here to suggest some solutions, too. There is the problem not only of about 1,000 repossessions a week and the fact that almost 500,000 people are three months behind in their repayments, but that there are increasing bills and the prospect in the autumn of reduced security to help people pay for mortgage interest if they are on income support or other benefits.

Additional uncertainty about interest rates and about the future of mortgage interest relief at source—whatever one's views—does not help.

May I make the point as strongly as I can, from a constituency which is ranked in the top five for unemployment in the country, that the best way to get people back into work is to boost the construction industry? It is proven to be the best way to get more people at all levels of skills back into work more quickly. Self-evidently also, the more people are in work, the more people can better afford their homes. We should encourage not only new build, although the hon. Member for Chorley (Mr. Dover) is right to say that there are some very good newly built properties that are well presented, but renovation, modernisation and home improvement. If we want to reduce unemployment significantly, there is no better way than to boost the housing sector.

There has always been intervention in the housing market, incentives and disincentives and a debate about how to control it. We have never left matters entirely to the marketplace. I was on the Standing Committee on the Housing Bill in 1988 when the Government legislated their policy of reducing subsidy. People predicted then, that instead of subsidy being provided by the Department of the Environment, the Department of Social Security would increasingly have to pick up the bill. All hon. Members now see graphs that show the balance changing from subsidy of the buildings to subsidy of the person. There has been a huge reversal and it is unsustainable in the long term. What should be done?

First, we need a partnership between funding through subsidy by the taxpayer, whether by mortgage tax relief or other forms of subsidy, and funding through the private sector. That partnership, especially in shared ownership and the rented sector, must be achieved to provide long-term security. Secondly—I agree with the speeches of the hon. Members for Macclesfield and for Chorley—the housing market has been nonsensical over the years because the most difficult time to get finance has been when one most needs it: when one starts out. Indeed, getting finance becomes easier for people when they least need it, when their income is more secure and their children are off their hands. Nor do we adequately look after people nearing the end of their lives who do not want responsibility, or cannot afford it, but want to stay in their own homes. We must not forget that issue.

We must ensure that we do not distort incorrigibly in Britain the balance between renting and owner-occupation. We have always made a theological distinction between those two forms of housing in this country, which does not exist in other countries. My party has long argued that people should be given housing credit and that it should be applicable equally to the rented and the private sector. Area by area and local authority by local authority, we must respond to local need and demand. The housing mix and the allocation of land should be influenced by what people want; dependent on whether they want to buy or rent.

I hope that hon. Members will take away the following theme from this debate. We should not only consider people who are taking up the right to buy or have started to buy their own home. What we need most is a policy which provides security and stability. Only in that context can people plan and make commitments. I hope that the Government will seek the widest consensus over the next few weeks and months. People can be overly partisan about housing policy. The best housing policy is one which is secure over the remaining period of this Administration and into future Governments. Only in that way will the voters and those who want, need and buy homes, thank us for being sensible about giving them security for the future.

Photo of Oliver Heald Oliver Heald , Hertfordshire North 11:03 am, 17th May 1995

I congratulate my hon. Friend the Member for Macclesfield (Mr. Winterton) on initiating this important debate. There is no more important issue in politics. Home ownership is one of the most deep-rooted ambitions of many people in Britain. All the surveys for many years have shown that 80 per cent. of the population aspire to owning their own home. One of the successes since 1979 has been the rise in home ownership from 45 per cent. to almost 67 per cent. I do not think that the difficulties of the recession in the housing market and negative equity have changed the essential desire among people in the United Kingdom to buy their own homes. In fact, under the right-to-buy scheme, about 1,000 properties are sold each week.

I could not agree more—unusually—with the hon. Member for Southwark and Bermondsey (Mr. Hughes), who said that, as a country, we owe security and stability to people who have the deep ambition to own a home and have perhaps saved over some years to get together a deposit to buy a house. If the housing market is like a roller-coaster, it will not meet those aspirations. So it is right to go for a policy on housing which provides security and stability.

I do not have enough time to say much about the distress and anxiety felt by those in negative equity. In the eastern region, there are something like 70,000 homes with negative equity. Indeed, we have all seen constituents in surgeries who have found saving up, buying a home and then finding that its value has fallen one of the most distressing events in their lives. I accept the point that my hon. Friend the Member for Chorley (Mr. Dover) makes about moving up in the housing market and the possibilities of lower price. He is right and the lowering of interest rates has been welcome. For the future, we should learn from the lessons of the past. We should try to achieve steady growth in house prices and not an inflationary, expansionary boom, which raises expectations and is—frankly—illusory.

There is some good news. I am not saying that the market has completely rectified itself, but it is noticeable that the number of households with mortgage arrears of more than six months has fallen substantially in the past year. It is down by 21 per cent. Certainly in the eastern region, house prices are beginning to rise. There was a 1.6 per cent. increase in the first quarter of this year. That trend has been continuing for well over a year and it is also reflected in the national figures, which I do not believe are as gloomy as one or two hon. Members have said.

Since the end of 1992, through 1993 and 1994, the Department of the Environment mix-adjusted house price index shows, quarter on quarter, year on year, an increase of between 1 and 2 per cent. Although that is not dramatic, it is in the right direction. For new houses, as my hon. Friend the Member for Chorley said, there has been a more noticeable increase. In the eastern region, in every quarter since the end of 1993, new house prices have been rising and, in the most recent quarter, they have risen by 4.3 per cent.

Photo of Nicholas Winterton Nicholas Winterton , Macclesfield

I am grateful to my hon. Friend for considering the national position. Perhaps we can do no better than to quote the Halifax building society. Its house price index shows that prices are down by 1.5 per cent. in the year to April 1995 and that there has been a cumulative decline of between 10 and 15 per cent. since 1990. Indeed, the Council of Mortgage Lenders says: Depending on the house price index used, between 7 and 10 per cent. of mortgage holders have negative equity. Surely that shows the serious problem that I was seeking to highlight in my opening remarks.

Photo of Oliver Heald Oliver Heald , Hertfordshire North

I hope that my hon. Friend will agree that I have not sought to minimise the difficulties. If he examines the mix-adjusted house prices indices, which give the recognised national figures, he will see that at the end of 1992 the index stood at 92, whereas it now stands at 94. So far as I can see, it has risen to some extent in every quarter over that period.

Photo of Nick Raynsford Nick Raynsford , Greenwich

The hon. Gentleman must be desperate.

Photo of Oliver Heald Oliver Heald , Hertfordshire North

The figures are provided by the Library, so they cannot be far wrong.

I believe that the real solution lies in sustained economic growth in the economy at large, with low interest rates. I entirely agree that we must have low interest rates in Britain if the housing market is to pick up and the construction industry is to thrive, and I hope that the Chancellor of the Exchequer will continue his robust stance on that matter.

Finally, if we come to the point where tax cuts can be made we should consider whether we can provide married couples with some extra assistance, so that we can build on the building block of the family. Many of the families in negative equity are young married couples, and I should like them to have extra relief.

Photo of Nick Raynsford Nick Raynsford , Greenwich 11:10 am, 17th May 1995

I begin by declaring an interest as a consultant to HACAS, the social housing consultancy, but I stress that I have no financial interest in the subject of the debate—other than that which, I guess, every other Member of the House shares, as a home owner whose property value may be affected by trends in the market.

I congratulate the hon. Member for Macclesfield (Mr. Winterton) on his success in securing this important debate on the state of the housing market. I agree with almost everything that he said in his analysis, which was a trenchant and accurate assessment of the parlous state into which the housing market has fallen.

We all know that, despite frequent promises of green shoots, the private housing market has failed to show any sustained recovery from the recession. Clearly the market is jittery and consumer confidence is low. The number of transactions has been way below the level that might have been expected, given the historically favourable ratio of house prices to incomes.

That is not simply a case of a recovery being stalled. The evidence from the first three months of 1995 shows falling demand and falling output. New house building starts in the first three months of this year are 8 per cent. down on the equivalent three months of last year—a period which itself delivered a rather disappointing output. Even more worrying is the National House-Building Council's evidence that applications for new starts are 17 per cent. down on the equivalent quarter of 1994.

Those figures reflect a seriously depressed market, and do not support the arguments advanced by the hon. Members for Chorley (Mr. Dover) and for Hertfordshire, North (Mr. Heald), who seemed to assume that the market was making a slow recovery.

Photo of Lady Olga Maitland Lady Olga Maitland , Sutton and Cheam

The hon. Gentleman seems determined to prove that the market is collapsing, even in the face of information to the contrary. I wonder whether he is aware of a press release by the estate agent Barnard Marcus, which has conducted a survey of properties in west and south-west London. For each category surveyed Barnard Marcus uses phrases such as: Optimism has returned … if a house is well presented and realistically priced, it will sell without too much difficulty In east Surrey, apparently: The market is very active at present", in south-west London: house prices in general have increased", and in Middlesex: New homes sales are increasing". How does the hon. Gentleman equate all that good news with his attempts to knock the market down?

Photo of Mr Tony Banks Mr Tony Banks , Newham North West

That is their selling technique.

Photo of Nick Raynsford Nick Raynsford , Greenwich

Yes, the hon. Lady is confusing two things. One is the selling technique of estate agents in south-west London, and the other is the evidence available from every source, including the corporate estate agents with records from all over the country, that shows demand for housing falling. The hon. Lady is talking nonsense, as usual, and is not reflecting the real state of the housing market.

Why is the market in that parlous state? Essentially, there are three explanations. First, the recession of the early 1990s has had a long-lasting and traumatising effect; in the past five years 295,000 families have lost their homes through repossessions, and 1.2 million are still trapped in negative equity. It is hardly surprising that those human tragedies on a massive scale have cast a long shadow over the market. Hundreds of thousands of families are simply not taking the risk of buying a home or of moving, for fear of falling into debt.

The second factor, as was highlighted by my hon. Friend the Member for Warley, West (Mr. Spellar) in his brief intervention, is the impact of changes in the labour market. Uncertainty is caused by more than the fact of a continuing high level of unemployment; the fear of unemployment runs deep among many people who are currently in work. Few people now feel confident that their job will be around for the 25-year duration of the conventional mortgage. The increasing use of short-term contracts also adds to the uncertainty that inevitably inhibits people from taking on new mortgage commitments.

The third factor is the rising cost of mortgage repayments. Increased interest rates, two cuts in MIRAS and the threatened cut in the income support safety net that will force home owners to take out expensive private insurance, have all contributed to a substantial increase in home owners' costs. The costs involved in servicing a mortgage on the average-priced house will have risen by a staggering £830 between January 1994 and October 1995. With the fear of further interest rate rises adding to the misery, it is hardly surprising that the housing market is now showing a serious downturn.

The Government bear a large measure of the responsibility for that situation. They created the unsustainable boom conditions of the late 1980s, which led inexorably to the disastrous crash of the early 1990s. They encouraged people to buy their own homes, often overstretching themselves in the process, with pledges of continued Government support—pledges that have now clearly been broken, as is pithily stated by the Council of Mortgage Lenders in the evidence that it sent to hon. Members for the debate.

The Government promised to retain MIRAS. Although some commentators would question the wisdom of that pledge, it was nevertheless a firm commitment. To break it now, when so many home owners are in serious financial difficulty and market confidence is so fragile, is not only an act of betrayal but an ill-timed intervention, damaging the market and forcing up home owners' costs.

To add insult to injury, the Secretary of State for Social Security has come up with his half-baked proposals to cut the income support safety net, supposedly to make savings that on closer inspection turn out to be derisory. There are few clearer illustrations of the Government's loss of touch. They seek minuscule short-term savings, while causing immense damage to market confidence and leaving hundreds of thousands of home owners fearful about the future.

To complete the sorry picture, there has been a parallel cut in Britain's social housing programme. Local authorities are now to all intents and purposes prevented from building new homes, and housing association output has been savaged by two successive years' cuts in the Housing Corporation budget. The outcome, hugely damaging to hundreds of thousands of people in need and to our hard-pressed house building industry, has been to reduce the number of new rented housing starts in 1995 to the lowest level since the end of the second world war. As my hon. Friend the Member for Newham, North-West (Mr. Banks) said in his important speech, that has left many people living in unsatisfactory housing conditions, both in Newham and elsewhere.

When the health of the housing market is such a major component in the feelgood factor, and with a general election fast approaching, one would have imagined that the Government, fresh from their remarkable performance in the local elections, might have second thoughts about pursuing what appears to be a suicidal policy.

The truth is that the Government are caught in a time warp, driven by the fear of a lurch back to the bad old boom-bust cycles for which they were largely responsible. They are right to want to avoid unleashing another unsustainable boom, but they are wrong in failing to recognise that economic circumstances in the mid-1990s are light years away from those that applied in the late 1980s boom. The danger in the present situation is not that recovery in the housing market will spark off an unsustainable and damaging inflationary spiral, but that the housing market will not be allowed to recover because Treasury Ministers, like the generals in the first world war, are too busy fighting yesterday's battles rather than understanding today's circumstances.

I do not care if the Treasury mandarins—aided and abetted, as the hon. Member for Macclesfield rightly said, by the Governor of the Bank of England—encourage Tory Ministers to rush lemming-like over the cliff of electoral extinction, hotly pursued by many of those who currently sit on the Government Benches. However, I care passionately about the misery being caused in the lives of millions of our fellow citizens by the callous, incompetent and pig-headed policies being pursued by the Government.

We have a responsibility to act to protect the interests of the hundreds of thousands of home owners laden with debt and in fear of repossession. We have a responsibility to act on behalf of more than 1 million households who are trapped in negative equity and are unable to move home, and who have a continuing millstone of debt around their necks. We have a responsibility to act to rescue the beleaguered house building industry, which has been ravaged by the impact of more than five years of recession in which more than 500,000 construction jobs have been lost.

We have a responsibility to act in the interests of the British economy, in which the house building and construction industries play a crucial part. Restoring confidence in the market and expanding our hopelessly inadequate social housing programme will not just be good for housing in Britain, but it will be good for all those in jobs which, in one way or another, depend on a thriving industry—people who make bricks and tiles; people who manufacture kitchen and bathroom units, central heating boilers and fittings; people who manufacture doors and windows; people who weave carpets and curtains. All these, and many more, stand to benefit from a revived housing market. Many hon Members—including the hon Member for Southwark and Bermondsey (Mr. Hughes)—have rightly pointed that out.

In the interests of Britain and the British people, we call on the Government to reverse their misguided and damaging policies towards the housing market. We urge them to abandon their ill-thought-out proposals to cut income support, and we urge them do the U-turn which is vital to send the signal which the market so desperately seeks. I warn the Government that if they do not do that, they will pay a heavy price.

Photo of Mr Robert Jones Mr Robert Jones , Hertfordshire West 11:20 am, 17th May 1995

It was curious that the hon. Member for Greenwich (Mr. Raynsford) chose to have a swipe at the Governor of the Bank of England in his speech, since his hon. Friend the Member for Dunfermline, East (Mr. Brown) was recently talking about giving the Bank more control—not less—over interest rates and monetary policy. No doubt that debate will take place on another day.

Today's debate has been interesting, and the speeches have highlighted the complex inter-relationship between the many factors which affect the housing market. We heard some thoughtful speeches, particularly from my hon. Friends. But while I did not agree with every point that the hon. Member for Newham, North-West (Mr. Banks) made, I thought that he hit one or two nails firmly on the head. I take seriously the question of housing renovation, and I would welcome a discussion with him on the matter on another occasion. Like the hon. Gentleman, I began life with access only to an outdoor loo. Unlike him, however, I had one other hazard. When I stayed with my great aunt Linda in North Carolina, I had to bang loudly on the outdoor loo with a stick to dislodge the rattlesnakes, which one had to do if one did not want to end up with a greater vulnerability than one would have had in Newham or Bedford.

Perhaps we do not get enough opportunities to discuss the housing market, because it is an important subject. While I recognise the concerns which my hon. Friend the Member for Macclesfield (Mr. Winterton) has set out, I cannot share his overall assessment of the situation. I want to start by reaffirming the Government's complete commitment to sustainable home ownership. Owner-occupation remains the tenure of choice of eight out of 10 households. I am not surprised by that, even after the experience of the recent unsustainable boom.

Buying a home remains a sensible investment for most families. It is an investment not in the speculative, get-rich-quick sense, but an investment in choice, independence and control. It is also an investment in security, particularly later in life when mortgages are repaid. That is why home ownership has grown from 56 per cent. to 68 per cent. of all housing tenures since 1979. That is why it will continue to grow in both market share and volume.

Concern has been expressed this morning about the possible effect of the proposed changes to income support for mortgage interest. There will be an opportunity shortly to debate these proposals more fully when my right hon. Friend the Secretary of State for Social Security places his final proposals before the House. In the meantime, I would like to make two points. First, the existence of an insurance market will of itself help build confidence, and secondly the fact is that even under the present arrangements, an estimated 70 per cent. of home owners would not be entitled to state help.

What is needed is comprehensive, high-quality and reasonably priced insurance products. That need exists even under present arrangements. Until now, these products have not generally been available. Many critics have said that this will not change, and that the insurance industry cannot cope. It is important that the new insurance products which emerge should address the realities of the changing labour market, particularly as we move away from traditional patterns of employment. This represents a significant challenge, but we believe that the industry can and will rise to that challenge.

I am pleased to say that the signs are that, in part prompted by the proposed income support changes, a more positive and innovative approach is emerging from the insurance industry and the house builders. That said, it has been recognised from the outset that insurance can provide cover only for a limited and finite period and cannot cover certain eventualities. My right hon. Friend has made it clear that he will consider very carefully the need to continue to protect those whom insurance cannot reasonably cover.

On the question of mortgage interest tax relief, the staged reduction of the MIRAS rate from 25 per cent. to 15 per cent. has increased monthly mortgage payments by £20 at most. This needs to be compared with a £130 reduction in average monthly mortgage payments resulting from interest rate reductions since October 1990.

I said that we continue to support sustainable home ownership. Indeed it remains our policy to extend home ownership. Through the right to buy, shared ownership, cash incentives and other low-cost home ownership schemes, we are enabling over 200 social sector tenants a day to become home owners. It has been suggested that the success of these and other initiatives to encourage marginal first-time buyers are at risk through the increased costs of owning a home. It is not our policy to encourage people to be unrealistic about what they can afford. That is not sustainable home ownership.

Several hon. Members have referred to first-time buyers, but it is worth making the point that it is clearly not affordability which is restraining the market. The National House-Building Council first-time buyers ability to buy index is at the highest level since its introduction over 20 years ago.

I am very conscious of the problems being experienced by some home owners—particularly those in arrears with their mortgage, and those with negative equity. These problems will not disappear overnight. But the success of Government policies in securing sustained economic growth, increased employment opportunities and low interest rates means that fewer people are now likely to get into difficulty with their mortgage payments, and those in arrears are more likely to be able to pay them off.

Figures published by the Council of Mortgage Lenders show that the number of households in arrears of six months or more at the end of 1994 was down 21 per cent. on a year earlier. The number of households affected by negative equity has fallen by 44 per cent. since the 1992 peak. The number will continue to decline as house prices edge upwards. South-east England, where the negative equity problem is most concentrated, has now seen modest house price increases for six consecutive quarters. In the meantime, I am pleased to note that most of the main mortgage lenders now have arrangements to assist borrowers with negative equity who need to move home.

I know very well that recent market conditions have caused concern to the house building and building materials industries. This is a vast sector of British industry, for some 43 per cent. of the total construction market is housing-related.

There is no doubt that house builders have had a difficult time over the last few years. The total number of new house starts fell by nearly 40 per cent. between 1988 and 1992. Although there have been some improvements since then, the industry has regained nothing like its old confidence. Last year was a good one for the industry, by and large; starts were up by 13 per cent. and the total volume of output increased by 7 per cent., but many builders were hoping for a much more significant upturn.

In the early months of 1995 builders were scanning the horizon for the long-awaited resurgence in the private market. Nobody is suggesting that there is a boom at the moment, or anywhere near that. Housing market activity is generally rather lower than last year, and prices are scarcely moving from month to month.

In the nature of their business, house builders have to make considerable investments—in land, materials, machinery and people—well ahead of public demand. The housing market is not an easy one to judge. Understandably, builders have looked with concern at increased interest rates and changes to MIRAS and benefit arrangements, although these factors alone should not make much difference to the market. Nevertheless, they are part of a pattern of uncertainty, and I recognise that markets are critically sensitive to that. We are emerging from a period of many such uncertainties. The last few years have seen the firm establishment of a low-inflation economy. Housing remains a solid investment, but it is no longer a get-rich-quick gamble. That must be good for house building in the longer term, but the market is taking time to adjust to the new realism.

While unemployment continues to fall, a significant proportion of prospective buyers have been affected by unemployment over the past five years. Many of those in work are adjusting to more flexible employment arrangements, such as fixed-term contracts. In the longer term, these changes are good for the economy and the housing market. Builders need a strong, stable, responsive economy and a healthy and responsible attitude to home ownership. No one should regret it if we do not see so much of boom and bust in future. But there has undoubtedly been a hiatus and the market is taking a long time to pick up—longer than many expected and hoped.

House builders can do much to encourage a new spirit of enthusiasm for home ownership. A good product at a good price will always be the prime incentive, and there is plenty of evidence from the last few years that new housing is more popular than ever. Builders rightly look to the Government to advance the cause of home ownership for all the undoubted benefits that it brings, and we intend to do our best to encourage it.