The End of the Home Owner Dream – New Homes for Rent Only.

When I arrived in the UK in 1981 housing was abundant and cheap. I was able to purchase a house well within a year and there were many available starting at about 75% of my annual salary (£6,500 as a Post Doc in the University of Sheffield) but I purchased one on an 80% mortgage at about 1.5 times annual salary (£10,000). Admittedly this was in South Yorkshire where property prices were below the national average. Thirty five years later the situation is markedly different. It would not be over dramatic to say there is a housing crisis.

The Redfern review, states real house prices have jumped 151% since 1996, while real earnings have risen only about a quarter as much. A report by ResPublica says 1.2 million people are languishing on housing waiting lists in England, while more than 6 million face tenure insecurity with no prospect of ever buying their own home.

I was in Kew Gardens at the weekend and looked at the local estate agent by the Underground station. Very modest flats were around £500,000 and decent houses around £4 M. It’s no wonder that so many people move out of London. On a more local level, my own house, in rural Northumberland,  (featured on the Progressive Pulse title page) which was purchased in year 2000 has gone up by a factor of three in price; I would never be able to afford it now. Indeed when purchasing it we factored interest rates at 15% PA as a worst case scenario and decided we could just about manage; it is terrifying to think what a 15% PA mortgage rate would do to JAMS with a mortgage.

In 2007 Gordon Brown pledged 3 million new homes by 2020 and a target of 240,000 new homes per year. This has not been achieved in any year in the past decade, indeed there has been a shortfall of around 100,000 homes per year, which with simple arithmetic gives a shortage of around 1 million homes in the UK.

It is worth noting also of course that the population of England has gone up from under 49 M to over 53 M in the seventeen years since 2000.

This is not however the big story. If one focuses on Dwellings by Tenure  in England since 2000 (Table 1) there are a number of issues:

  • There has been a dramatic  drop in Local Authority (council) housing from over 3 M homes in year 2000 to to 1.6 M in 2016. This is close to a factor of two.
  • Social housing has increased by about 1 M dwellings taking up some but not all the slack from Local Authority housing.
  • The number of privately owned homes fluctuates up and down, with no clear trend. I have done a simple analysis by fitting a linear trend line (figure 1) which shows if anything the number of owner occupied homes is decreasing slightly (by about 5,900 pa).
  • The big story however is the massive increase in privately rented property. The numbers have increased from just over 2 M in 2000 to a little under 5 M in 2016. Of course not all new houses are bought by the private rental sector, much of the increase will be in purchasing existing property.

In summary the data shows clearly that any increase of housing stock in England since 2000 has not gone to owner occupiers but rather to the private rented sector. It is clear that Rentier Capitalism is alive and well in England.

Table 1 Dwellings by tenure in England
Year Owner Occupied Privately rented Social rented – Housing Association Social rented – Local Authority
2000 14,600,000 2,089,000 1,273,000 3,012,000
2001 14,735,000 2,133,000 1,424,000 2,812,000
2002 14,846,000 2,197,000 1,492,000 2,703,000
2003 14,752,000 2,549,000 1,651,000 2,457,000
2004 14,986,000 2,578,000 1,702,000 2,335,000
2005 15,100,000 2,720,000 1,802,000 2,166,000
2006 15,052,000 2,987,000 1,865,000 2,087,000
2007 15,093,000 3,182,000 1,951,000 1,987,000
2008 15,067,000 3,443,000 2,056,000 1,870,000
2009 14,968,000 3,705,000 2,128,000 1,820,000
2010 14,895,000 3,912,000 2,180,000 1,786,000
2011 14,827,000 4,140,000 2,255,000 1,726,000
2012 14,754,000 4,286,000 2,304,000 1,693,000
2013 14,685,000 4,465,000 2,331,000 1,682,000
2014 14,674,000 4,623,000 2,343,000 1,669,000
2015 14,684,000 4,773,000 2,387,000 1,643,000
2016 14,786,000 4,847,000 2,343,000 1,612,000

Source: DCLG Housing Statistics, Table 104, Live Tables on Housing Stock.

Figure 1 Owner Occupied Dwellings England 2000-2016

Comments

  1. Mark Crown -

    Nothing to argue with here.

    My biggest beef with housing price stats is over the source of house price inflation which is often portrayed as a supply side problem (scarcity).

    However, there are other factors at play that are often ignored such as the fact that housing is not just a good it is also an asset (both).

    So although we would expect a good to drop in price if we produced more of it, housing’s behaviour as an asset – where the prices tend to continue to go up no matter how many are produced because of the supply of credit and the promise of high returns that is available that people want to tap into – is what seem to be more at play here.

    Also, the type of homes being built comes into play – are we talking about starter homes here or the luxury end of the market? And of course yet another sub factor is our housing stock being bought as investment by non-UK residents.

    There has been evidence from the work of the late Alan Holmans in the 1990’s that house building has not really kept up with the demands of the market but I wonder what he would feel now looking at the way this morass of a market works?

    We need more affordable housing and I’m not saying that just as a local housing developer but also as the father of two children.

    1. Sean Danaher -

      Mark
      Thanks, many good points here. I agree completely we need more affordable homes and that house prices in London in particular are being distorted by overseas investment. It’s a very complicated issue with no silver bullet solution.

  2. Peter May -

    I still wonder if there is a real shortage of homes. There is definitely a shortage of affordable homes and of homes in the right places for jobs. But of course it has been left up to the ‘market’ to fix that – as everything else.
    But in the land of the empty shop which Britain has been for some time, it usually looks as though the accommodation over the shop is empty too. If that is the case I never understand how it stacks up for the owners to leave eveything empty.
    Some councils (eg locally https://exeter.gov.uk/media/1321/empty-home-leaflet.pdf )
    do make efforts to ensure homes at least are not left empty but I don’t know if this practice is
    widespread.

  3. Ivan Horrocks -

    My experience is similar to yours, Sean, except I was a long way from being an academic at the time (I was a miner). Similar to South Yorkshire, the East Midlands has always enjoyed lowish house prices and my first property was purchased in 1981 with a 100% mortgage from the Halifax at 1.5 times my annual salary. That was the first and last mortgage of that type I had as from then on I was able to afford a deposit (taken from what I made on the sale of each property) such that within ten years I was down to a 90% mortgage. When I read and see what’s going on with housing now (both my son and daughter are in the private rented sector with the various landlord issue that brings with it – e.g. waiting ages to get anything broken fixed), as with your article, it makes me realise that without that first 100% mortgage I would never have got on the housing ladder as I never earned enough to save for a deposit. Indeed, I never earned enough to be able to afford to save anything until I was in my 40s. But by then I was an eastblished “home owner” of course. I strongly suspect my children won’t be in a position to buy a property until they inherit from me, or win the lottery. I find that sad and depressing.

    1. Sean Danaher -

      Indeed Ivan

      My cousin Jack was also a miner in the ’70s. Retrained as a lawyer and is now a QC.

      The inter-generational theft is staggering. We need a post about it. One of the things that makes me so annoyed about Brexit is that the current generation of children won’t have the opportunities I had; to work in Germany and France etc. without the slightest problem when I was younger. Though the is talk of European Passports. My own son fortunately has two passports both UK and Irish. I’ve never bothered getting a UK one. The sad thing is that I feel more alien now than during the Falklands War; I find the “Daily Mail” mentality repellent and it seems to be on the ascendancy at the moment.

  4. Lesley Gornall -

    Clear analysis of the problem of shortage. VAroufakis describes home ownership as an Anglo Celtic obsession, and we all know exponential price growth is not possible. Do you see the UK shifting to a rented housing system as in the rest of Europe, and how might this be facilitated?

  5. Geoff -

    My two children left University and each looked to purchase their first home. My son had to provide a 30% deposit of the value of the house, he was lucky we were able to loan him the money.

    Fortunately for my daughter, who was refused a mortgage as her application was right at the point of the 2008 crash. She was able to buy a property, directly from a relative whose mother had just died. All of this at a time when they had accrued a large debt for University fees and living expenses.

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