Just 43% of Germans own their homes – one of the world’s lowest rates. This reminds us that housing tenure has little to do with economic and social policy performance. So is the UK set to continue its recent shift from home ownership to rental? Three major contributions to the current housing market debate shed light on the positive and negative reasons why this may happen.
First, the Halifax and NatCen have produced a “Generation Rent” report surveying perceptions relating to the first time buyer market. Second, Nationwide released rather alarming house price inflation numbers suggesting the return of double-digit price increases. Third, Ed Miliband’s European election launch centred on proposals to support private tenants through capping rent increases and introducing three-year tenancy agreements.
The Halifax report into first-time buyer perceptions involved more than 8,000 20-45 year old respondents and 1,000 further interviews with their parents’ generation. While high prices still put people off buying their first home, the survey findings indicate improvements in being able to access a mortgage and raise the necessary deposit. Behaviour is also changing as people cut back to build savings; there is increased borrowing from family and friends and also more returning to the parental home to help save for that deposit.
But parental help also reduces retirement savings for that generation, and this form of intergenerational wealth transfer appears to be creating varied and sometimes unwelcome consequences for the donors. Interestingly, Help to Buy was not seen by those survey respondents able and likely to buy as critical. While owning is still the preference for most, it is evident that renting has become more acceptable, particularly for younger people.
The authors are unclear on whether the recovering market and supporting policies will allow home ownership to recover. High house prices may simply lock people out of the market, reinforcing this sense of an “attitudinal shift” towards renting by younger households.
Young miss out
While this is all interesting and provocative, there are other issues at stake. First of all, we know that real incomes have been in a long term decline that is only just now reversing. But the “wages are increasing again” headlines don’t capture the critical point that some are benefiting more than others, broken down by region, age or social background. Younger workers in particular are missing out on the recovery, as they tend to have lower wages, weaker contracts and less secure employment. Given the commitment buying a home entails, it is no wonder they are having trouble getting on the housing market.
And house prices are still escalating. Nationwide suggests that their quality (but not seasonally) adjusted annual house price index has risen by nearly 11%, the most since 2007. There are different trajectories reported elsewhere and we will have to wait to see if this is an accurate measure of what is happening on the ground but if so, it marks a worrying divergence from comparatively sluggish earnings growth, particularly for that potential first time buyer cohort. When did your wages last go up 11% in a year?
Call this an affordability or a cost of living crisis but one can see why Labour has moved onto this terrain. Many housing commentators have called for longer standard tenancies, not just to provide security for tenants but also to secure income for landlords and investors.
This has a track record outside the UK. If three-year contracts and maximum rent increases – tied to some notion of an average marketwide increase – are viewed as rent controls, then it is at the relatively soft end of the spectrum of control only. Others have correctly stressed that we need to think about rental markets in context and then carefully assess the design of the regulations before we can reach a considered view. We certainly should not simply rely on one dimensional textbook accounts of theoretical rent controls. However, that is not to argue that badly designed rent regulation will not generally reduce supply, quality and standards.
The risk in this is first whether more lenders will follow the Nationwide to permit longer term tenancies when dealing with lending to investors. And then there is the question of how the investors themselves will respond, particularly the institutions and corporate landlords. Will they see longer tenancies as granting them a steadier income or less flexibility? The immediate consumer response reported in the media is positive though many commentators would argue that short-term populist housing policies have not had such a great track record over time.
So, there is much to think about for decision-makers like those inside the Bank of England – possibly rapidly rising house prices, some evidence of weakening constraints for first time buyers but also a sense that renting is now more acceptable. And looking further ahead, Labour has clearly signalled a willingness to intervene a group that hasn’t been any kind of priority for successive governments: private tenants.