7 March 2022

A new LISA life: a simple reform that would help young people on to the housing ladder


The war in Ukraine has banished ‘partygate’ from the front pages, but much of the damage has already been done. The decision to abandon a standalone bill for planning reform suggests that, despite its big paper majority, this is not a government about to try and do anything visionary with it.

Some measures will apparently be included in the upcoming legislation for Levelling Up. But whilst any change is obviously welcome, this does raise the spectre of Tory MPs conspiring to redirect housebuilding away from London and the south, where they’re most needed.

Naturally, the un-appeaseable anti-homes tendency on the Conservative back benches have not been satiated by the retreat; they now have building targets in their sites. There is every chance that housing policy gets even worse before it gets better.

All of this is storing up huge future pain for the Tories. The harder it becomes for people to acquire assets and start families, the fewer incentives they have to vote for the right. And as London continues to become less and less affordable, we can expect to see more formerly safe Conservative seats in the commuter belt starting to flip.

What can ministers do? In the absence of meaningful changes on planning, options are limited. But they could start by making the official savings vehicles they set up to help first-time buyers fit for purpose.

The Lifetime ISA (LISA) was a new, government-backed savings account created in 2016. It allows people to save for either retirement or their first home. To incentivise take-up, the Government puts in £1 for every £4 an individual saves, up to a maximum ‘bonus’ of £1,000 a year.

Obviously pumping even more demand into the housing market (see also Michael Gove’s remarks about getting banks to relax lending restrictions) is a decidedly short-term fix; in the long run it will only make the cost of housing even worse.

As a means of helping potential first-time buyers in the here and now, however, they’re better than nothing. But they could be better, and compared to planning reform passing some simple reforms to how LISAs work would be low-hanging fruit.

The problems all hinge on the fact that the maximum value of the home one can buy with a LISA is capped at £450,000. It isn’t obvious why this is, except perhaps to prevent young people getting ideas above their station. The best and simplest reform would be simply to abolish the limit.

Absent that, it should be index-linked to house prices. The £450,000 limit has been in place ever since LISAs were first introduced. Yet according to the ONS, between December 2016 and December 2021 the average house price in England rose by more than 24%. The purchasing power of a LISA is falling every year.

In many parts of the country, prices are sufficiently below the limit that this doesn’t really matter – and some Tory MPs are quite open about preferring young people to move to the North and stop inconveniencing southern homeowners.

But if that isn’t official Government policy, then the cap needs to be reformed so that it reflects the realities of the housing market. It could also perhaps be regionally weighted: £450,000 is some way below even the average price of a property in London.

Finally, the law should change so that two people buying a first home together can pool their caps. This would, at a stroke, bring a much larger range of family homes into the ambit of the LISA, making it that little bit easier for those looking to settle down and have children.

None of this is actually a substitute for expanding the supply of housing, of course. In the long run, pulling levers to pump even more demand into the market is only going to keep pushing prices skywards, and that will continue to impose huge costs on the British economy and society.

But with this Government only a couple of years from the next election and having clearly run out of intellectual steam, tweaking the rules on an existing policy is probably one of the quicker policy ‘wins’ available. Hundreds of thousands of people have opened LISAs since they were first introduced; the least ministers can do is ensure they’re fit for purpose.

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Henry Hill is News Editor of ConservativeHome.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.