A few thoughts on the housing crisis which is reaching crisis point in much of London and the South East, with those even on good incomes unable to find a home, and facing displacement to areas far away from family and friends.
We all know someone in that situation.
- The need for a comprehensive set of measures and the realisation / acceptance that some measures will upset home owners. Tricky one that if trying to win an election in a FPTP system.
- The impossibility of landlords being both speculators and (for those that let) being good landlords. A property owner with one eye on capital appreciation and option of selling at a profit to escape what they see as ‘hostile legislation’ in the private rental sector cannot also be a ‘responsible landlord’.
The following measures, all three together, would have the effect of making home ownership less attractive as a store of value and provide the paradigm shift back to the original purpose of housing.
- Task the Bank of England with preventing house price inflation above the general inflation rate. It can do this without raising interest rates. Deposit levels for house purchase should be set by the BoE and varied by region as necessary. This will not deal with the issue of cash buyers (a big phenomenon in London in particular) obviously.
- Remove Private Residence Relief to Capital Gains Tax. The conditions for receiving this relief are reproduced here..
“you have one home and you’ve lived in it as your main home for all the time you’ve owned it
you haven’t let part of it out – this doesn’t include having a single lodger
you haven’t used part of it for business only
the grounds, including all buildings, are less than 5,000 square metres (just over an acre) in total
you didn’t buy it just to make a gain” (Rather amusing this last one).
Create a separate rate of Capital Gains Tax for residential property sales.
- Take land banks away from speculators and place under control of local government. This is the situation in Germany where land is released for building according to estimated numbers of future households.
All three measures need to be implemented and this will create conditions where realistic improvements in the private rental sector can be developed.
- Introducing longer tenancies
- An effective and enforceable framework to enforce minimum standards
- Ceilings and caps on rent levels by region
Current policies on the housing crisis, by both main political parties, tip toe around the problem with a main aim of not upsetting home owners. I am convinced that the current housing crisis, which has reached critical levels in London and the South East, is not solvable without upsetting home owners. Home owners are central to the crisis; the sense of entitlement to ever increasing house prices, opposition to new development in their area, to name just two problems. During the 2015 election in Brighton a good example was the Save Our Deans campaign with the Greens providing the ‘useful idiot’ to Conservative east Brighton.
Current Conservative policies on the housing crisis revolve around ‘ponzi’ schemes to get more young people onto the ‘housing ladder’ with creative ideas around deposits (paid for by the tax payer) and repeating ad nausea the line that £450,000 is affordable to people on median incomes. In addition the Conservatives are engaged in a brutal ideological attack on social housing.
Labour Party policies verge on the indifferent. A sop in the direction of home owners and the importance of helping people onto the housing ladder (the housing ladder is important to the young only because the private renting option is so unappealing), together with a knee jerk in the direction of the PRS with that old staple, rent controls, which in isolation would be a disaster. Oh, and some wild idea that if Labour won the election and said pretty please to builders and speculators 200,000 houses would materialise as if by magic. Just like that.
A few words on PRS
Some landlords are ‘bad apples’, but no more so than some MPs, lawyers, local councillors, doctors. Many landlords, (the ‘accidental landlord’ who inherits property), find themselves in unfamiliar situations with regard to their legal responsibilities.
Another factor is the age of property in the UK, especially when compared to other countries with a significant private rental sector; this poses maintenance issues.
One of the biggest lines of tension is those that exist between tenants and other tenants, particularly with regard to anti-social behaviour and lack of care in looking after common areas. Prospective tenants also compete with other tenants in a scarcity situation.
Letting agents, popular whipping boys, do perform a function; they provide a service to both tenant and landlord. Abuses in terms of eye watering fees tend to reflect market scarcity creating the conditions for exploitation and poor legislation.
Young people if they had a fair choice would choose renting over buying. They are in an experimental and enquiring stage of life where home ownership is a drag. For far too long they have had no choice other than to buy and get into debt at an early stage in their life.
“The cult of home ownership is dangerous and damaging”
The above is in quotations ‘cos I nicked it from the FT and the full piece, by Adam Posen, can be found here..
“… no relationship exists between a country’s home-ownership levels and its average housing satisfaction and quality..”
“…there is no iron law that higher-income economies must have higher rates of home ownership: Mexico, Nepal and Russia all have home-ownership rates of more than 80 per cent, while the French, German and Japanese rates are 30-40 percentage points lower. The US and the UK rates sit between them at about 65 to 70 per cent.”
From my own experience home ownership is low in Switzerland and very high in Spain.
What is needed on housing is nothing less than a paradigm shift away from housing as a store of value towards the original purpose, a place of shelter and security, a home
[Note: I write the above from experience; 32 years as a homeowner (during which I had 5 years as a landlord), 5 years as a PRS tenant, in Brighton and London. The rest of my adult life span was squatting and sofa surfing, and 8 months under the West Pier. ]