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There has certainly been a problem of affordability in relatively low-wage local economies such as north-west Wales for many, many years, which has now been greatly exacerbated by the massive increase in house prices that has occurred in many other rural areas and now afflicts many urban areas, too. In that context, it seems a crazy move to add further billions of speculative investment to the housing market.
Colin Brown of Grant Thornton said that the rule change will inevitably lead to a further rise in house prices as individuals flood into the market and change the make-up of their pension funds. Tom McPhail, of independent financial advisers Hargreaves Lansdown, said:
"It is hard to reconcile the Chancellor's stated ambition of controlling the housing market's disproportionate influence on the economy with a proposal which will allow several hundred billion pounds of pension fund money to wash into the housing market."
That is what independent observers are saying about clauses 171 to 174.
The changes come on top of an already overheated housing market. Why is the market overheated? Because, as we heard from the hon. Member for Yeovil, there is a large buy-to-let component. Yesterday, the Financial Times published figures showing that total buy-to-let lending rose from £24 billion in 2002 to £39 billion in 2003. Although there are signs that the rental market has started to overheat, it is not yet damping down. Returns on buy-to-let investment stagnated in the fourth quarter of 2003 due to the over-supply of rental property; too many people have gone into the market. For instance, yields in London are often below 5 per cent., compared with 7 per cent. in the rest of the country. That trend is likely to spread, as more investment goes into that sector.
Rental yields have been dropping, yet more money is flowing into that market. That is a classic, textbook case of speculative investment. People are basing their investment decisions on expectations of capital gains, regardless of the income base. That is precisely what has happened in Australia, where the buy-to-let sector now represents 45 per cent. of the entire property market and yields have fallen to 2 per cent. Yet the property market is still surging ahead because of the capital gains expectations. That is a classic bubble. Is that the context in which the Government want to create a mechanism that involves a few extra billion pounds? I ask the Paymaster General to give a figure for that when she responds to the debate. To be fair, the Government go into some detail in the regulatory impact assessment to discount some of the arguments that I have adduced, but no figures are given for the extent of the increased investment flowing into the housing market as a result of the changes to SIPPS.
Obviously, a housing property crash would be catastrophic. That goes without saying and we have heard the reasons for that already. Given the already high level of household indebtedness, factoring in a property crash could put us in an extremely worrying position. However, even if there is no property crash, serious problems are still associated with a property market that continues to rise. As we have heard, affordability is a problem for local young families in many parts of the United Kingdom. For that reason alone, I urge the Government to be cautious about creating such a method for investing in property using pension funds.
The average age of first-time buyers is rising in the UK. It is now 36 in Wales and 33 across the UK. That may shock hon. Members. In a sense, one's own property has always been a major part of saving for the future. Certainly in this country, a mortgage has been a way to avoid rental expenditure later in life. First-time buyers are increasingly crowded out of the housing market because older, more affluent people are using it as an investment vehicle by buying second or third homes. There are 10,000 people in London with more than 30 homes each and there are thousands more with more than 10 homes. We are crowding out young people from making the most important investment for the future—buying their own home.
I am trying to be constructive; I can understand the rationale for making a wider portfolio of assets available for pension investment because of the pensions crisis, but the SIPPS mechanism that the Government are choosing is not the best means of proceeding. With interest rates rising and probably set to rise further, the timing is certainly very dangerous, given what we all know about the state of the housing market.