I have recently come across an interesting report, published by the Smith Institute called ‘The end of the affair – implications of declining home ownership’, written by Andrew Heywood.
The report considers what seems to be a permanent trend – the decline in home ownership in this country. Together with the worrying fact that this does not appear to be relected in government policy, which is still based on the idea of increasing home ownership.
Decline in home ownership
The peak of home ownership it seems was in 2003 with 70.9%. It has now slid down to 67.4% in 2009/10.
There are a number of reasons for this:
- property prices are high meaning that it is beyond the reach of most people
- Greater personal debt, in particular
- young people leaving full time education having to pay off loans taken out to pay for tuition and other expenses
- Since the financial crises mortgages have been harder to obtain, and
- Changing work patterns and increased mobility make renting more attractive
Problems for government
Heywood states that the English population is set to increase by about 30% in the next 25 years which equates to some 250,000 households per year. With house building at an all time low, this is worrying.
However government seems to be turning a blind eye. The coalition has affirmed its commitment to extending home ownership, for example Grant Shapps ‘Age of Aspiration’ speech. To quote from the paper
Much government policy and activity is predicated on high and rising levels of home ownership. This includes economic policy, asset-based welfare policies such as elderly care in the community, revenue from taxation including stamp duty land tax, and a range of other services.
Asset based welfare policies are those which provide service on the basis that they will be paid back by the recipients from their assets – in most cases the family home. However if people are living in rented accommodation this will not be possible – meaning in most cases that government will not get repaid.
Pluses and minuses
However it is not all bad news. Here are some positive points on a declining home ownership:
- the private rented sector is more suitable for a more mobile work force which may be needed in future.
- a contracting housing market may be less prone to ‘bubbles’ and if less volatile this may help improve economic performance
- if less personal wealth is locked up in housing this may result in a different pattern of saving which could benefit other parts of the economy such as manufacturing
On the other hand:
- would the fact that fewer people will have access to the equity in their properties to fund purchases result in a lower level of consumption, and
- would a lower consumption in owner occupier related expenditure such as DIY products have a negative effect?
Turning to social housing providers, Heywood makes the point that falling home ownership levels (and an increasing population) will only exacerbate the current problems of finding affordable housing for those unable to buy.
If the government wants housing to be available at ‘affordable’ sub market rates, then government is going to have to get involved. It is not reasonable or realistic to expect the private sector to provide this. However the current government does not seem poised to take any significant action.
I have only been able to skim through the report and it really needs a more careful analysis than I am able to provide. However some of the main concluding points are:
- Government must come to terms with the fact that its current policy of extending home ownership is unrealistic unless it is able to provide substantial investment – which we all know is not going to happen
- It must also look at how to bring in institutional investment and expand the corporate landlord sector. Bearing in mind that a large proportion of current landlords in the private rented sector are private individuals with only few properties.
- There is also the huge problem of how to increase housing supply from its current catastrophic levels.
- Plus there are also implications for other government activities as the assumption of high and rising levels of owner occupation are embedded in policies.
The report concludes as follows
In considering a strategic response to what could prove a continuing shift in the balance of tenures, the issue of an alternative social vision will therefore inevitably be raised. Such a vision will have to encompass the role of the state, the funding of welfare, and the relationship between housing tenure and the culture of citizenship. It will involve developing new concepts, but it will also involve a clear-sighted application of those new concepts across the full breadth of public policy formation.
You will find the report online here. What do you think about this? Do you think Heywood is right? What action do you think government should take in view of falling home ownership levels?