Last week I suggested that the time had come to re-evaluate housing and housing law in view of the very significant changes in the sector since the main legislation change in 1989 when the assured shorthold tenancy was introduced.
One of the inspirations for that post was the report from the Cambridge Centre for Housing and Planning Research. This analysed housing statistics and projected the figures into the future looking at three scenarios.
Let us take a look at what they found. Note that I have picked out a few figures but if this interests you, you should look at the full report.
Changes between 1993 and 2010
The report makes the point that it is no longer realistic just to talk about home ownership as a whole. There are two types of home ownership
- outright ownership and
- ownership with a mortgage
and the two need to be looked at separately.
Overall the survey found that the balance of tenure across the country is changing. There is a rise in outright ownership of property and a fall in mortgaged ownership. Mortgaged ownership has fallen across the country from 43% to 35%. Outright ownership has gone up from 25% to 34%.
These changes are particularly significant if you take age into account – the increase in outright ownership is mostly in the older sector. The effect of the fall in mortgaged ownership is that fewer younger households and households with families are buying their own homes.
In the rented sector the emphasis is also changing and private renting is becoming the dominant sector rather than the social rented sector as before – private renting changing from 7% to 12% over the period, and social renting becoming the least important of the tenure types.
The report comments that the trend is particularly important in recent years, and that the increase in private renting is mostly in younger households.
The picture in London
The report states that there is a big difference between London and the rest of the country.
In London social renting is far more important than in the country as a whole. However this has gone down from 30% to 23% while private renting his risen from 12% to 19%.
Overall owner-occupation is running at around 55% while renting accounts for about 45% of all households – a very significant change from the 68%/32% split at the beginning of the period. If this trend continues tenants will soon outnumber owners with important political, social and economic implications.
I won’t go into the detail of the different projections (you can see all the figures in the report) but they show (as you would expect) that the change in tenure types is affected by the economy.
So if we have a strong economy, then in most of the country anyway, the proportion of properties bought on mortgage will increase. However if the economy continues to be weak, the private rented sector will continue to become more important – particularly for younger households and for families.
In London these trends are exaggerated – for example the projections show that if the economy remains week, owner occupation with a mortgage could drop below 20% and more than 40% of Londoners could be living in the private sector.
the trajectories are clear. Unless the economy picks up, England and particularly London will be more and more dependent on rented housing. Equally, the worse the economy the more likely it is that this rented housing will be in the private sector.
The report also shows that the dependence on renting, in particular private renting, is going to be (as you would expect) in the middle to lower income sector who will, if the economy remains week, be excluded from owner occupation.
The report then goes on to say
tenure structure depends on two distinct factors – the economy and housing policy.
If the government emphasises owner-occupation through a range of policy measures and these policies are underpinned by a robust economic recovery owner-occupation could return to more ‘normal’ levels even if credit remains tighter than in the past (although easier than at the present time).
But a resilient housing policy, ie, one which would be sustainable through the economic cycle, would place most emphasis on ensuring that a decent affordable home can be found in all tenures at all times.
When reading this report, a few paragraphs in the summary stood out for me. So I will end by quoting some of these (as they might not otherwise see the light of day)
About length of term and security of tenure:
Although it is legally possible to provide any length of lease, beyond issues about the costs of turnover and assuming sustained demand, there are no incentives in place at present to provide longer term security and more suitable conditions for family households.
International evidence suggests that while longer term leases can benefit both sides there must be far more certain contractual arrangements in place – especially with respect to eviction and rental security – if these are to be acceptable to households.
Given the actual and potential expansion of the PRS the government must engage with this debate and explore what might be done.
On institutional investment:
We note that institutional investment has been falling in all European countries so it is probably unlikely to be the holy grail in terms of new supply though it can clearly contribute
On social renting:
Were the availability of social housing is to decline further there would be major implications for wages among service workers and for growth potential in the London economy.
On affordable rents:
affordable rents do not provide the same product at the same rent levels as social housing. It seems very likely we will see an erosion of what might be seen as traditional social housing and its replacement with a higher cost product and thus sustained pressure on the budgets of lower income households.
the evidence to date suggests that this is a much slower process than many anticipated partly because of greater longevity and linked to that more use being made of that wealth by the existing older household.
The evidence suggests important generational shifts – with the future for home ownership not being like the past at least for a substantial number of the current younger generation who must expect to rent.
As noted above, some existing owner parents will be eating into their property based equity holdings through higher costs of care and longevity while on the other hand their offspring are saddled with the need for higher deposits/repayment of education loans etc.
The upshot is that facilitating their entry to ownership may not be as easy as some suggest
We need a policy for private renting in London that takes account of all the different constituents – and does not just concentrate on constraining the welfare bill.
Social housing remains very important in London and yet it is vulnerable as a consequence of the RTB, changes in tenancy arrangements and many other factors. Social housing is a vital part of London’s competitive position – especially in accommodating so many who work to support the service economy.
This needs to be properly recognised.
And also chillingly
Everywhere there are large numbers of family households in the private rented sector. This will almost certainly continue, and for those who miss out on other options there is the prospect of private renting into old age – something that is unlikely to be welcomed.
the biggest issue that has not been addressed by this report is the impact of under-supply and the lack of investment in additional housing.
In the absence of improved supply, if the economy improves, whatever the longer term trajectories set out here, the most likely immediate outcome will be pressure on house prices and even greater volatility in the housing market.
I hope to be looking at some of the issues raised by this important study in future posts.