Although it may not be obvious yet, campaign season is starting in the run up to the next general election. We are an increasingly unequal society and 2015 will be a crucial opportunity for us to make a choice about the kind of country we want to develop for ourselves and our children. So before the manifestos are launched amidst much fanfare and the political mudslinging starts, let's focus on a few of the issues that really matter to people. Property ownership to property owners is a source of great pride and often a sense of smugness at how smart they were to "invest" in property as if those who don't have a choice. To those on the outside looking in despite being in good so-called middle class jobs, property ownership can be a source of frustration and insecurity.
Only 1 in 10 homeowners in the UK is under the age of 35, the average age of a first time buyer is now 30 and in the last decade the percentage of people owning their own homes has decreased for the first time since 1918. More people rent than own in London. Perhaps even more tellingly the average age of a person making their second house purchase, more likely to be a family home, is 42. The reasons for this are complex and differ by region. The social consequences are also important. Is it purely a coincidence that the age when people are starting a family is rising when the age when people have security over their living arrangements is also rising?
In London there is a global market where UK residents are competing with international investors to purchase property. With research stating that 75% of new build properties in inner London are sold to foreigners, this is clearly having a massive effect on price inflation and demand. So what is the answer? Banning foreign investment? As the causes are complex so the solution must be. A complete ban on foreign investment would be seen as isolationist and could provoke reciprocal bans in other nations. However, we could designate certain properties as only for purchase by owner occupiers. This would not restrict ownership to British people but a purchaser would need to be able to evidence a right to reside in the UK to be able to purchase.
Even with this release of supply, it isn't clear that house prices would fall in London. More likely prices would rise more slowly. Nationally, the problem could be said to be more one of supply than demand. Here the potential solution is to build more new homes and it likely that both political parties will make commitments on house building in their manifestos. It is estimated that we need to build around 250,000 new homes per year nationally and currently we build around half this amount. New homes though, won't address the fact the we use our housing stock inefficiently, around 50% of owned-homes are under occupied - that's 15 million bedrooms! There are schemes to address this, for example, the rent a room scheme that provides tax breaks. However, the thresholds haven't been revisited since 1997 when rents have risen over 100%. Under-occupation has also recently been the focus of welfare changes - the spare bedroom subsidy or the bedroom tax depending on your political persuasion. Under-occupation also causes other problems, for example, increased energy consumption and bigger carbon footprints. It isn't clear whether when we're building new housing stock, it is of the right type. Do we need 1 bedroom flats or 4 bedroom houses?
So if we built more and more of the right type of stock, if we put some restrictions on the sale of some properties so that they could only be purchased by owner occupiers with a right to live in the UK and if we increased the tax breaks available to those who rent a room, would we solve the problem? In my view - no. The reality is that since the post-war building programmes of the 1950s and 1960s we have not built anywhere near enough houses. I lack faith that any political party has enough control over all the various players, from landowners, to building companies, to planning committees, to NIMBYS, to actually succeed in building what is needed. Also, even if they did build enough supply, there are still big problems of social segregation. Planning requirements for any development to include an amount of affordable housing only lasts one purchase I.e. as soon as the initial sale has been made, market forces weigh in and properties rise in value. Some developers manage to avoid "polluting" their luxury developments with affordable housing by building the affordable stock in a different location. Likewise shared ownership schemes have not taken off in a big way and are complex to administer.
Further laws are needed to achieve genuinely affordable housing in the long term. First, affordable housing should constitute a percentage of the actual development. Not built somewhere else. Not in a separate cul de sac with a separate entrance. We're talking complete parity with the "unaffordable" housing (for want of a better phrase!) other than as to space or size of plot or fanciness of building material. Second, if you purchase affordable housing, you should only be able to sell it for x percent more than you bought it for. "X" should be based on RPI or wage inflation not house price inflation. Finally, I think we need to go further and provide that all private developments should have a certain percentage of social housing, meaning housing owned by a local authority or a housing association which will be provided for rent at an affordable rate. Perhaps controversially, I don't think there should be a right to buy these houses. We have surely learnt the lessons of depleting social housing stock through right to buy. For the medium term, newly built social housing should not be subject to right to buy until we reach a tipping point where there is enough housing for those on social housing registers. As an additional condition, social housing stock built by private builders should be sold to local authorities or housing associations at cost price meaning not for a profit, similar to s. 106 requirements where builders have to set aside money for the benefit of the community.
Ok. So if we did all of this, would we have long term affordable housing stock? Possibly. However, a big issue facing those trying to get on the ladder without help from rich relatives is saving for a deopsit - and yes, if mum or dad can lend you £20,000 for a deposit without hardship, they're rich! People can't save for a deposit due to pervasive unemployment amongst under 25s, low wages for the employed and high private rents with even higher and sometimes punitive administration fees charged by landlords and estate agents that are not helped by short tenancy periods - tenancies typically do not extend beyond 12 months.
Some people have talked of rent control as a solution. But as far as I can tell rent control has never really worked. People have found ways around it or a black market has been created in controlled properties. However, prescribing the maximum administration fee that can be charged for a tenancy agreement could be done. So could extending the concept of assured tenancies so they could last up to 36 months with clauses in there to link rental increases to wage inflation or RPI. There could also be a government kitemark scheme for ethical landlords so customers can make more informed choices about their landlord - often you go into a tenancy blind as to whether the landlord is ever going to fix anything or will hike your rent by 15% in a year's time. Dampening down the profitability of the rental sector will also have an impact on supply and demand. Whereas we used to be a nation of shopkeepers we now seem to be a nation of landlords as no other asset class has delivered the security and returns of property so now many pension pots are invested in bricks and mortar.
Although this blog is quite long, it is actually a relatively quick canter through the various issues and potential solutions. And maybe this is the biggest problem of all... solving the housing crisis can't be reducd to a sound bite. One line in a manifesto. A catchy campaign poster. This is gnarly, meaty issue and to date no political party has done more than scratch the surface of the causes, let alone hit on solutions that are likely to change things. Again, here may be another problem - is there really an appetite to change things? When the vast majority of voters are over the age of 50 and the property weath of the over 50s equates to almost 70% of the property wealth of the country, does this group really want to see property values rise more slowly or even stagnate? Not everyone votes selfishly but still, if a political party promised that house prices would grow more slowly would they really get voted in to power? People say they want affordable homes, but without massive wage increases (which are not on the horizon), the only way to make homes more affordable is to slow house price inflation. Maybe this pill is just too bitter to swallow so the political parties will continue to pay lip service to the issue. They'll commit to building lots and lots of homes without control of the supply chain to make that happen and in 10 years time, we'll see further decreases in overall home ownership and an expanding and profitable rental sector, with sharks of estate agents charging huge administration fees for short tenancies.
We'll have created a new feudal system. Not one based on aristocratic wealth but one still based on property. There will be the landowners and the "others". With the landowners able to assist their offspring into landownership. The most disturbing part of the housing crisis is not just that people can't buy a home and have a secure roof over their heads, it is the social segregation created by the "affordable" vs "unaffordable" housing in new developments. It is the huge drag on social mobility that property ownership is becoming and will increasingly become.