Housing has become a huge issue in recent years and today we see the big political parties wheeling out their policies to address the problem. I’ll be setting out my views and policies here today. But first, a few facts and figures: –
- Homeownership has reduced from 71% to 63% over the last decade;
- The average age of the first time buyer is now 36 years old;
- 1.4m private landlords now own 5 million homes in the UK, almost a fifth of the total;
- In London, tenants are spending 50% of their income on rent, outside London 40%.
Although interest rates are at record lows, the new affordability criteria, record prices and hefty deposit requirements have combined to prevent many from buying their own home. We will hear much today from the parties about how we need to spend lots more taxpayers’ money on building more housing (Greens), how we need to cut developer contributions to local infrastructure (Conservatives) and stopping landbanking (Labour). But none of these plans deals with one of the major drivers of increased prices and that’s the buy-to-let market. Already, almost one-fifth of all UK homes are owned by private investors renting them out. Clearly, there’s nothing intrinsically wrong with having a private-rented sector, indeed it’s an essential component of our housing market. But is has become far too dominant. Recently, I was astonished to discover that a new housing development in my County Division saw 35% of its homes going to buy-to-let landlords. No wonder homes are being priced out of reach of many in their 20s and 30s, with such rampant additional demand.
That demand should not be a surprise to those in Government. Only now is the FTSE100 returning to its all-time high reached 15 years ago. Low and even negative interest rates, introduced to stimulate growth following the global financial crash, have further limited opportunities for investors to get a return on their capital. The UK housing market has been seen as a safe haven given the slow build-out of new homes by the volume housebuilders and money has flooded in. My big concern is that when, in April, pensioners are able to withdraw their pension pots in cash rather than via an annual income, or annuity, much of that cash will end up in the housing market through buy-to-let acquisition, further exacerbating the problem of increasing house prices. Some estimates suggest that as much as £6bn could be withdrawn from pensions under this scheme. If we said that just half of this were to be invested in buy-to-let property, we would be talking about another 15,500 homes denied to first-time-buyers. I would point out that I support the new pension freedoms; it was always iniquitous that pensioners could save up all their lives and find that, for no reason other than an accident of their date of birth they would find that the annuity rate was so low that it placed them in poverty. But releasing billions to further stoke house prices is not the answer.
Housing is an essential of life, like food and water and it is worrying that its availability has been hijacked by investors. If we are to limit house-price growth and open the market to more people we will need to limit the insurgency of buy-to-let. This could be done in a number of ways, for example via the taxation system but I favour reform of tenancy law. Currently, the system, dominated by the 6-month assured shorthold tenancy, is stacked firmly in favour of the landlord, who can increase the rent to what ever he/she likes every six months and can terminate the agreement on a month’s notice. I would like to see a move towards the sort of system that operates in Germany where very long-term tenancies are the norm and rents are increased in accordance with price-based indices. This would make buy-to-let a less attractive option, reducing demand and with it, house prices. Such changes would also give families security of tenure, something especially important to families with children at school.
The acceleration of house prices has had another, equally, unhelpful effect and that is the size of the housing benefit bill. In order to subsidise the inflated rents demanded by private landlords, the taxpayer is now paying £10bn a year in housing benefit. We might more accurately refer to housing benefit as ‘the landlord subsidy’. By making homes more affordable we start to bear down on the huge cost to the public of the landlord subsidy.
The Conservative policy of providing discounted homes is particularly daft given that they are proposing to pay for this discount by abolishing the requirement for developers to build genuinely affordable homes and stopping the requirement for housebuilders to contribute to local infrastructure. The effect of this would be to make home ownership even more difficult for the least well-off and if you are lucky enough to get one of the new homes, don’t expect the Council to be able to afford to build new roads or more school places as the developers will no longer have to pay for them.
In line with much of their manifesto, the Greens have come under fire for being unable to say how they would pay for their 500,000 new homes. The Labour Party’s plans appear to have some merit in them as far as they go. The LibDems appear to want councils to identify 15 years’ worth of land. This perpetuates the myth that the planning system is responsible for the deficit in new house building. Many Councils are already identifying 15 year landbanks so it is difficult to see what benefit this policy would bring.
Reform of the private rented sector along the lines of what I suggest will not only make rents more affordable and give families some security of tenure, it will also help to minimise the house price rises, which are excluding so many from the goal of owning their own home.