Britain is in the midst of a housing crisis more than 30 years in the making. When the Thatcher government gave council tenants the option to buy their homes via the Right to Buy scheme, it also prohibited councils from reinvesting the funds in more homes. The state was gradually replaced by the private sector as the primary builder of properties. So followed decades of rising demand and falling supply, which has resulted in today’s situation of booming house prices, unaffordable rents and surging levels of homelessness. The current Tory government needs to shift its focus away from propping up house prices and protecting investments to building more affordable housing.
Is demand simply out of hand?
Since the introduction of Right to Buy in 1980, the UK population has grown year on year; it is now 12% larger. That’s 8 million more people in need of homes. But even this significant increase in demand doesn’t tell the full picture. In addition to the growing domestic population, the UK housing market is increasingly flooded with foreign investors – at least 2 million of whom own property in Britain. Recent years have seen a huge influx of capital from overseas being poured into the property market, especially in London. In the capital, three-quarters of all new builds are bought by foreign investors, as are half of all properties worth more than £1 million, with the average asking price in London currently £981,182.
While demand in the housing market is increasing, the makeup of that demand is also changing. First-time buyers are facing stiffer competition from landlords, as the buy-to-let market has increased threefold since 2001. Investors are making money hand over fist, with profits totalling a staggering £112 billion last year, up more than £5 billion on the year before, largely at the expense of private renters and would-be first-time buyers. Between January 2014 and January 2015, the number of first-time mortgages awarded was down 14% year on year, while in the same period buy-to-let mortgages were up by the same percentage.
The Help to Buy scheme was the major housing policy of the last parliament. The scheme essentially sees the state underwrite part of the mortgage debt for first-time buyers, meaning a lower deposit is needed. It has come under particular scrutiny recently, with Capital Economics, a leading independent research company describing it as having had a “fleeting impact” that has served only a “lucky few”. The scheme has driven up demand and thus contributed to spiralling house prices. The income needed to buy a first-time home is now 12% higher than it was when the scheme started, compared to only a 1.5% increase in average earnings.
Or is supply just running dry?
Just as demand for housing has been on the up for decades, inversely supply has completely tailed off. In 1970 more than 350,000 homes were built. Last year that figure was just 141,000. In 2004, Kate Barker’s Review of Housing Supply suggested that 240,000 homes would need to be built a year to ensure enough affordable homes to meet demand. Since then, that target has never been met. The current output is now 42% below that suggested minimum. The Tories’ 2015 manifesto promised 200,000 “starter homes” – reserved for first-time buyers under 40 and sold at 20% below the market price – over the course of the entire parliament. It did not contain a pledge on the total number of homes to be built annually.
While the government is neglecting building social houses, it is still spending vast amounts on subsidising housing - the amount spent on housing benefit is set to reach £25 billion a year by 2017.
So what has happened? Since the introduction of Right to Buy the state has stepped away from housebuilding and left the construction of social housing to not-for-profit housing associations. But housing associations only managed to build 21,600 new homes in 2013 compared to 1.7 million people who are on waiting lists for social housing. Anyone fancy a house share with 78 other applicants and their families? Thought not. Between 2010 and 2015, the amount councils have been given to spend on housing measures was cut by 34%, and further cuts look likely in the course of the next parliament.
But while the government is neglecting building social houses, it is still spending vast amounts on subsidising housing, just perhaps in the wrong areas. The amount spent on housing benefit is set to reach £25 billion a year by 2017. A significant amount of this money is simply lining the pockets of private landlords and helping keep rents inflated. A further £1.4 billion a year is spent on home ownership subsidies such as Help to Buy. It is estimated that the money spent on both these areas between 2010-2014 (£115 billion) would be enough to build some 6.8 million state-backed homes at current rates of subsidy, which would be enough to solve the housing shortage overnight, although rent and house prices – and therefore landlords – would probably take a drastic hit.
As the state has stepped back, the private sector has failed to step up. The drastic fall in the number of state-built homes since the 1970s simply hasn’t been sufficiently offset by the number of privately built homes. Since the recession, the building of private sector homes has been concentrated in fewer hands, with lots of small and medium-sized firms going under. Larger developers are reluctant to increase the numbers of homes they build, as Toby Lloyd of housing charity Shelter deftly puts it: “Housebuilders are profit-making developers, that’s their job. Why would they build more homes to sell them more cheaply?”
Making better use of what we have
It’s patently obvious that more homes need to be built consistently over a number of years to try and alleviate the shortage of decent and affordable homes. But there’s also a strong case to be made for using the properties that already exist but are sitting dormant. According to the Empty Homes Agency, there are more than 600,000 empty residential properties in England, 200,000 of which have been empty for six months or more. Based on statutory homeless figures, that’s nearly enough to provide each homeless person with two properties.
Mark Hemingway, Chair of the Empty Homes Agency, told me: “Properties that lie empty can blight neighbourhoods, represent a waste of our housing stock and mean that we are underutilising brownfield land that could readily provide much-needed homes for people.”
Charities like Habitat for Humanity Homes already do work in this area. They have a scheme that renovates disused properties on behalf of the landlord, before renting them out via housing associations at affordable rents. They have completed dozens of such homes, but what is needed is a more widespread approach that can bring whole derelict streets en masse back into use.
In addition to more traditional derelict properties, there is a growing trend of “buy-to-leave” investors who buy homes – especially new-builds – simply as assets that accrue value and therefore it’s easier to leave them empty. Quantitative statistics on this are notoriously hard to come by, but there is much anecdotal evidence of it. In one new-build tower block off Old Street, London, only one-third of the addresses were registered for both council tax and voting – a clear indicator of occupancy. If the limited supply that is created is being gobbled up by investors instead of being used as homes, this represents a serious problem. It seems high time some law to prevent this, or at least a viable tax to dissuade it, is implemented.
Building a better future
There is much at stake in tackling the crisis caused by Britain’s grossly unbalanced housing market. On the one hand developers, investors and buy-to-let landlords are reaping astronomical profits. Since 1996, property in the UK has performed considerably better than any other asset, with a return on investment as high as 1,400% over that period. At the sharp end of the scale are those forced to stay in temporary accommodation, live in caravans or even sleep rough – all of which have risen dramatically over the last four years. And then there are those in between, potential first-time buyers priced out and families being hit with ever-increasing rents on the private rental market.
The money spent on Help to Buy and other demand-side schemes would be better invested on increasing the supply of housing, especially by building affordable homes for tenants that were ring-fenced from investors – or, crazy idea as it might be – social housing. The current Tory plan to extend the Right to Buy scheme to housing association tenants is nonsensical, as it will only benefit those who don’t need help – tenants who already have both secure and affordable homes. Perhaps the most fundamental shift required is to stop viewing houses are purely investments for the rich; they should be homes for the rest first and foremost.
Image courtesy of Craig Rodway via Flickr, used under CC Licence.