Antony Mason see that something has to give – but where?
The Halifax came up with some depressing statistics last week. Based on a poll of 4000 non-homeowners, they found that two-thirds of young people (20–45 year olds) believe they have no prospect of ever getting on the property ladder.
The price of properties at the lower end of the scale – the kind of flats and imperfect small houses that first-time buyers would be looking at – is simply too high. In London, this is about £175,000 (minimum), which would require a couple to earn £30,000 each to afford a mortgage based on the new, tighter lending criteria – if they can come up with a deposit of 20% (£35,000).
That is a big ‘if’: the result is that, according to the Council of Mortgage Lenders, the average age of first-time buyers who do not have help from relatives with the deposit is now 37.
It means that more and more young people are renting – the ‘Generation Rent’. And as a result of the demand for rented accommodation, rental prices have gone up, recently hitting an all-time record average of close to £700 a month.
An intergenerational problem
There are several causes of this troubling situation: a housing market stoked up by overgenerous mortgage lending (a key contributor to the national financial crisis); a limited supply of housing stock; and a stagnant property market.
It is the older generation who have been the beneficiaries of the property boom, which has far outstripped salaries; and they are often the owners of rental property as a result of the vogue for investment in buy-to-let property of the last two decades or so.
The crisis is not just a question of house-ownership: it is a socio-economic problem. Couples tend to put off having families until they feel they have a stable financial base and home.
Now the older generation – the Baby Boomers – see how their own children are left facing unpalatable housing difficulties, and they can witness the consequences at first hand.
Rent vs mortgage
Does it matter so much if people rent their houses? Well, it might matter a lot if they are still renting when they retire, and are then at the mercy of rent increases at a time when they will be on the fixed income of a pension.
It is not all roses for those with mortgages and a house to call their own (or that part of it that is not owned by the bank, of course). Under financial pressure, in the past three years some 300,000 households have switched to interest-only payments, abandoning repayment mortgages, and so deferring indefinitely the time when they pay off the lump sum. This is renting under another name, and simply adds to the already massive levels of personal debt.
Puncturing the balloon
To rectify the housing situation, it seems that something will have to give.
The Halifax, in its media communications surrounding its report, steadfastly refused to suggest that house prices should come down. It seems unlikely that they will, at least at the crowded bottom end, because of the shortage of supply. Consequently, rental costs are unlikely to come down either.
The Halifax tentatively suggested that they may introduce a 95% mortgage, to reduce the burden of the deposit. That would help on the deposit side, of course.
Many young people in rented accommodation want longer tenancy agreements, which these days are typically set at six months or a year. This would at least give them a sense of security that current renting fails to deliver. Could the government be bold enough to legislate for that, and even to cap rents? What would give it the sense of urgency to take on the property owners – a powerful lobby?
On another tack, the government has just announced that it wants all its departments to identify excess land, with a view to selling it for housing development. Sales could provide enough land to build as many as 100,000 new houses over the next three or four years. (The Home Builders Federation estimates that England needs a million new homes, and should build 232,000 a year to catch up.) With all the usual problems of planning permission, issues of affordable housing, and who stands to gain, there are endless questions to be answered about this strategy. And a policy of selling surplus government land was put forward by the last government and came to nought.
But something has to give, and the possibility of expanding the housing stock sizeably in this way might just be the pin that could puncture the balloon.