There are signs the government may drop its focus on homeownership in response to the referendum’s economic impact and the apparent slowing down of the housing market. But is the real choice between assisting homeowners and helping tenants? Or might we get the best of both worlds? As recently as 2008, a quarter of the tenants who became first-time buyers came from social housing and building more homes to let at social rents may be a path to boosting homeownership as well.
The headlines were recently grabbed by the fall in homeownership from 71% to 64% in little more than a decade. But if we break this down further there’s a more compelling story. The number of households buying with mortgages declined even further – from 41% to just 30% over the same period. It is this fall in purchases with mortgages, which typically involve younger households, that led to the overall fall in homeownership. The proportion of households with paid-off mortgages, who we can logically assume are older, actually increased slightly from 30% to 33%.
There’s no doubt the ‘crisis’ of declining owner-occupation is mainly affecting the young. As a consequence, nearly three million households in the under-44 age group are now private renters, compared to just 1.3 million in 2003/4.
Renting from social landlords has declined too, down by 1% since 2003 – a figure which is anything but trivial in the context of the significant increase in population and housing need over that period. And the numbers in social rent, as opposed to higher affordable rents, have also dropped sharply. The Chartered Institute of Housing (CIH) has shown the fall was 2% (more than 95,000 units) in the three years after 2012 and if present policies continue the likely fall over the period 2012/2020 is 5-7%.
A raft of recent reports have highlighted different dimensions to the problem: from higher housing costs gobbling up two-thirds of the average family’s increased income to the revelation that 86% of renters can’t afford a minimum 5% deposit on an average first-time buyer home. In the 1990s, it typically took lower-income households three years to save a deposit: now it takes 24 years.
So what can be done? Despite putting a massive £36bn into schemes to promote the private market, government measures like Help to Buy seem mainly to assist those on above average incomes, not the young renters who need most help. They also carry the danger of stoking house prices if they fail to boost supply. Could part of the £36bn be better spent?
It might seem paradoxical, but there are various reasons social renting acts as a stepping stone to homeownership. Social renting has been a jumping-off point for first-time buyers even when Right to Buy has been at historic low levels.
Housing people in homes let at social rents gives a big boost to the proportion of earnings that a household keeps after their housing costs, allowing them to save more easily for a deposit. On average social rents take 13% of incomes, compared with an average 28% for private lettings.
Building social homes would also help suck some of the demand away from the private rented sector, helping to constrain rents and potentially making it less attractive to buy-to-let landlords. This would give more opportunities for first-time buyers to acquire lower-priced housing in a slightly less competitive market.
Of course, even starting to gain these advantages would require significant investment. But there are already powerful arguments for borrowing cheaply to invest for the future. Post-referendum, the CIH and the National Housing Federation have joined in urging the government to use its housing budget more flexibly and allow a lot more sub-market rented homes to be built. There is a strong economic case for doing so, not just to boost a flagging construction industry but also to make savings in housing benefit. But the government could also consider whether such a programme might be an attractive, if unexpected, way of boosting homeownership.
If more social lettings were made available it would benefit the market as a whole, especially those elusive first-time buyers.
Original post: Inside Housing