By Toby Lloyd
This week's housing strategy ticked all the boxes for a strategic policy document. There were the earnest statements of intent and clunky catchphrases: "We want to build an economy that works for everyone, one in which people who work hard and play by the rules can expect to own a decent home of their own." There were sciency-looking graphs, reannounced reforms, and the inevitable gimmicky initiative to support first time buyers – but little in the way of substantive policy.
More interesting is the politics behind the strategy. The very fact that the government felt compelled to launch one at all shows that housing is rising up the agenda, and causing real concerns among MPs already nervous about their seats following the planned boundary changes. That the PM and deputy PM put their names to the foreword demonstrates that both parties want to own this agenda – which has also been a key theme for Labour under Ed Miliband. Housing's new found political popularity is probably in no small part due to the rapid creep of the crisis up the income scale. The problems faced by the more vulnerable yesterday are increasingly confronting the 'squeezed middle' today.
At this year's party conference, Cameron set his face firmly against any suggestion that England's 50-year love affair with homeownership was in trouble. "You hear people say: 'why can't people just rent like in Europe?'… I disagree… Macmillan made us the party of the property-owning democracy. Margaret Thatcher gave people the Right to Buy. Now let us, in this generation, inspire a new Tory housing revolution.'"
This revolution is clearly about promoting homeownership above all other housing options. The strategy does nothing to reverse last year's 60% cut in the affordable housing budget, which has driven new affordable home building down by 97%, a stunning detail that was slipped out by the Homes and Communities Agency the day after the strategy. Nor is there anything in the strategy to improve the lot of the 3.4 million households (including a million families with children) renting privately on short-term tenancies with rocketing rents.
It's hardly news that politicians – and voters – like homeownership, but betting on it growing is a risky political strategy. In fact, the number of homeowners in England peaked in 2005 (and the proportion in 2002), and first-time buyers were dying out long before the credit crunch finished them off. There are several reasons for this – but none of them are easy for government to change.
Firstly, there is probably a natural limit to the percentage of people that can be homeowners at any one time – although there's no way of knowing if the high of 70% reached in 2002 is it. But as more people move around the country for work the percentage of new arrivals in areas with overheated property markets grows, and these people are unlikely to own for a few years at least.
The main reason for the decline is simply prices. Even when mortgages were dangerously easy to get, the sheer cost of homes was freezing out a whole generation of would-be buyers. Back in 2006 the Council of Mortgage Lenders pointed out that a large chunk of recorded first time buyers were really returning from homeownership abroad, or had significant help from their families – who could presumably only help because they had accumulated a lot of housing equity themselves. This pattern of inherited homeownership clearly can't be extended to everyone. If unaided first-time buyers are to stand a chance, homes need to be cheaper.
As King Cnut found out, commanding tidal forces to reverse themselves is apt to fail. And declining homeownership might not be such a bad thing, as David Miles of the monetary policy committee has pointed out. Contrary to popular wisdom, four western European countries (as well as most of eastern Europe) have higher rates of homeownership than the UK: Greece, Ireland, Italy and Spain – hardly economies to copy. By contrast Germany, Denmark, the Netherlands and Sweden all have fewer homeowners – and have weathered the economic storm rather better.
Correlation is not proof, but there is some evidence that high homeownership rates decrease labour mobility and increase structural unemployment. And few economists would advocate increasing Britain's sky-high level of household debt, which is overwhelmingly associated with buying homes.
Improving the supply and quality of other housing options would help reduce the desperate desire to buy: that means a better offer for private renters and more truly affordable housing. Next year's reform of council housing finance means that local authorities could start building again, though more work is needed to get the most from this. And the massive growth in private renting, especially in London, has created a new constituency in favour of more stable tenancies, especially for families with children.
Yet the political, and even moral, attachment to promoting homeowning means these arguments simply won't be heard. The government's dilemma is that the one thing that would really help first-time buyers is politically unthinkable: lowering the sky-high price of homes. Falling house prices risk worsening the mood of economic gloom, and the merest prospect of cheaper homes drives certain sections of the commentariat to apoplexy.
As a nation, we are caught in this bind. We want everyone to gain from homeowning, but not everyone can gain because house prices are a zero sum game. Existing owner-occupied homes are non-productive assets – so any increase in their value has to come from somewhere else. That means from younger generations and ever-increasing mortgage debt – and on that score the country really has maxed out its credit card. Shelter research found that two million households used credit cards to pay their housing costs in 2010, an increase of 50% from the previous year.
Trying to square this circle, the strategy calls for house price stability – which is at least more honest than the last government's attempts to 'reduce long term unaffordability', a mangling of plain English designed purely to avoid reference to prices. But price stability doesn't improve affordability when real wages are falling and rents are rising. Stuck with this dilemma, governments always resort to yet another first-time buyer initiative that risks stoking people's expectations of homeownership, and miss the opportunities to improve rental options.
Aspiration is something all politicians want to encourage. But frustrated aspiration is a dangerous thing. Dangling the promise of wealth-giving homeownership in front of those paying through the nose for unstable private rented homes may not look so smart in a few years time. Backbench MPs worried about their seats would do well to ask when the number of frustrated renters will overtake the mortgaged homeowners in their patch. On current trends, it may not be long.
Toby Lloyd is head of policy at Shelter
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