We need a home ownership detox!

home-ownership

A home ownership addiction

An important day for British Housing Policy

Today, the Government will publish its white paper setting out its long-term housing strategy. This has implications for everyone living in the UK, including the homeless, those who rent, those who own and those who rent to others. It is a white-paper day for house-builders , those who manage our rental stock and it may even redefine our long-term attitude to saving.

Ever since I left college in 1983, the aspiration and expectation of working adults in the UK was to own their own home. This came before any form of financial security. Home ownership has become a substitute for life assurance, income protection and a retirement income. Household equity is – when all else isn’t – a source of national security.

For my generation, the chance to own a home grew over the 25 years to 2008. Cheap credit, available with minimum borrowing criteria and no deposit down , enable us to get on the housing ladder. Once one house had been purchased, more could follow. There was no need to have a business or even be in business, buy=to-let has become a lucrative hobby for many people.

But as council housing stock diminished and first generation right-to -buy properties became buy to let properties, the numbers of starter homes for future generations slumped. First time buyer prices soared which was ok till 2008; but then cheap and easily accessible credit ran out.

It has been since then that the phrase “the broken property market” has been on people’s lips. The fact is that most of us my generation remain over=dependent on property for our financial security and we have insufficient liquid assets to meet our cash flow needs in later life.

Meanwhile, our children and grandchildren struggle to get out of the family home and are becoming increasingly frustrated with the generational inequalities that have given so much to the baby boomers and so much less to them.


Universal Home Ownership – a broken dream

This is why this White Paper is important. This Government cannot pull the comfort blanket from those who have, nor can they pretend that Margaret Thatcher’s promise of homes for all is still realistic.

But if they are going to inspire another generation to aspire to financial security without home ownership, it will mean a massive detox from the expectation of risk-free equity accumulation created by a highly-geared mortgage.

It will also mean a radical reform of the private and public rental sector. By “public”, I mean “social housing” which must become just that, a type of housing as universally popular as social media. Social housing has yet to achieve this status. As well as this quasi public (not for profit) social housing, we need a properly organised build to rent sector.

I get encouraged when I visit Legal & General and see their commitment to building new homes for rent. Visit the strategy pages of their website and you can read about how they are helping Britain to build more homes which people can afford to rent. But the 131,000 homes we built in Britain last year was nowhere near the numbers needed (est. 250,000).

A high number of those houses were specifically built for the top-end London and home counties market, but I was encouraged to hear this morning of a new development of 4.500 properties in Wembley Park which will be rented by the developer and not put on the market.


The great British ownership detox!

I have never been a great property owner, I have a minority interest in a flat in Central London , most of which is mortgaged, I am a lucky one benefiting from un-naturally low borrowing costs and the prudence of a more financially gifted partner!

I am a great saver and a profligate spender – I have my money saved for retirement and a boat on which I wish to spend much of my later life!  Houses do not feature at the heart of my financial well-being!

So it is relatively easy for me to call on the Government to instigate a property de-tox on Britain as a whole. I mean by “property de-tox” a revaluation of the centuries old exaggeration of rights to the owners of property and an enfranchisement of those renting as fully paid up members of our society.

That means a step down from the top of the ladder (from where our leaders have given us that “hand up”). It means recognising that it is not so bad at the bottom of the housing ladder (where politicians should be spending more or their time) and it means that our businesses, bank, insurers, pension funds and asset managers should be clamouring to get a part of a new kind of action.

If we are to build a million new homes in the next four years (or whatever the target it), then I want my pension fund, my ISA and my direct investments to be directed there. That seems a proper place for me to get long-term yield to match my income needs in retirement.

So I look forward to this housing paper, due to be published at noon today, with a lot of excitement. I now know some of the people who have done the thinking behind this paper and I trust them and their intentions.

We need a home ownership detox, we need to ensure that homelessness is reduced and that not only those who are living on the streets but those who cannot but live with parents, have a place of their own. We need to empty the hostels and find a place in society for those who feel marginalised because they are in social housing. We need private companies and financial institutions to work together “building to rent”.

Above all, we need to wean people from the addiction of believing home ownership , the be all and end all of financial planning. You cannot buy a sausage with a brick, in later life – which we will have a lot of – we need those sausages!

sausages

you can’t buy a sausage with a brck

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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6 Responses to We need a home ownership detox!

  1. Con Keating says:

    The commentaries on Radio 4 and elsewhere have all been predicated on ever rising house prices. This is in fact merely a post-war phenomenon. It arises from an inadequate level of new house building, a growing population and smaller households. The removal of local authority construction represents a loss of around 120,000 houses a year. It is compounded by the diversion of finance to bricks and mortar, rather than productive investment. If we were to build say 400,000 a year (a dream as the capacity probably does not even reach 250,000) – over the life of a parliament, we would see house prices cease to rise and indeed in some locations decline. The idea of a house as an investment, when it is clearly a depreciating asset (and certainly so in hedonic terms), is a nonsense. It is a classic Ponzi.
    Driving up house prices has diverted ever more of our income into the provision of accommodation, and that makes no sense at all – but that said, the squeals from homeowners that would arise from construction at the appropriate levels would be a powerful voice for politicians.

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  2. henry tapper says:

    I believe recent census’ are suggesting households are getting larger again. I note the Tapper household in Shaftesbury is now at full capacity as middle aged sibs retreat to Dorset to lick their wounds having been burnt out in the smoke!

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  3. Reflections on house price inflation and property ownership-renting.
    Your comments at one acknowledged as a positive theory and yet ignore history.
    During the late 1960s and into the early 1970s, many thousands of new homes were built at Milton Keynes, Peterborough, Chesterfield, Gainsborough , in fact all over the UK at the behest of a government that was determined to reduce prices and make properties available primarily for those leaving London. It was part of the initiative to move 4-5 million people out of London and reduce its population. The result was the biggest housing boom that the country has ever seen and I was lucky enough to get 100% mortgage and ride on that crest of that wave into homeownership.

    Commercial enterprise has to make money to survive ( ask BHS Pensioners). That is what capitalism is all about and indeed is what has brought about the huge change in our society over the last 40 to 50 years: if you doubt that then please watch ‘Call the Midwife’ or similar period drama, for a definitive insight into the 1950s early 60s. Those were the days when London borough councils demolished 1000 family Victorian terrace accommodation to build high rise flats to house 750 (Lambeth and Elephant and Castle).

    You and I have much in common but I feel I have the experience of history behind my words which you seem to lack. Is not a criticism Henry merely an observation.

    Many of my clients saw, and continue to see, the ownership of property whether for personal occupancy or to ‘rent out’ as a more secure mechanism for future security than that provided by institutions. The problem with institutions is that they are now seen as the bogeymen of society and only fit for compensation claims and indirect contributions to the lawyers retirement scheme; indeed it is a lawyers world. Litigation and ambulance chasing rule and the public are sick of it, and being cheated by it. The plundering of funds to pay compensation is surely a contradiction in terms? But I digress.

    To return to the point; property values have grown in recent years largely because of the foreign investments in London property and the movement of those displaced by the purchases to those foreigners into the provinces. It is in fact a normal response to commercial activity, but peculiar to London.

    New homes are certainly required yet rental accommodation, as far as one can see from statistics, would be quite adequate had it not been for the influx of millions of people into the United Kingdom over the past 10 years; but I that not a measure of our success as a trading nation?

    You are of course right in that there is no easy answer. Yes; Government should step back from any drastic action, as we saw in the late 60’s they will probably only make matters worse. Builders will delight in building as many homes as the nation wants given proper planning access and the materials to work with. However, they are commercial organisations and if humanity has anything to do with the decision-making process, they will make as much money as they can, whilst they can, as they did in the late 60s and 1970s. It is called commerce and it has to be accepted as such.

    Please do not let us get involved in the ‘Gordon Brown style initiative’ of the early 2000’s which lasted; was it four months, or six months? It was his ploy for personal pensions to be able to invest in private residential property only to reverse the process. The door slammed shut and once again pension funds were denuded through the hasty sale of residential property from Sipps and Sass’s the grave detriment of those who were rather too quick to accept his challenge.

    The market will, as the market does, take care of itself and I believe you will find in 2020 maybe 2022 the market will adjust and the world will be a different place and house prices possibly more affordable-but who knows?

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  4. Sorry Con your words are pure fiction.

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  5. henry tapper says:

    I’m not really worried about the state of the housing market (price wise) that has very little social import, I’m really worried Terence about the large number of mainly young people who aren’t living independently, There aren’t enough houses, there aren’t good rental rules and the houses that are for sale are too expensive for ordinary people, it’s a broken market.

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  6. Henry, that is a generalisation that belies the facts. Surely the statement made by you depends upon location and aspiration. There is no God given right to own your own home, on that we agree. Similarly the rental market has its commercial rate dependent upon location and affordability. The two are dependent upon supply and demand, to take Con’s point but as long as wages rise and the population in an area rises so too will the cost of housing and the rental income demanded by landlords (the latter exacerbated by the tax treatment of second properties). My book ‘Hindsight-the Foresight Saga’ enters into the dynamics in more detail than is available here.

    In 2008 properties in Northumberland tumbled from £136,000 to £63,000 and remained there. In Putney prices rose from £800,000 to £1.4 million over a 4 year period. The reason was no buyers in the north and speculative foriegn buyers in London seeking a safe haven for their money. Any amount of ‘rules’ only seeks to futher confuse the market.

    1956 , THE RENT ACT, saw my father and I thrown out of our privately rented accommodation to allow the landlord to sell it (and the other three maisonettes in the property). Many towns in post war Britain had accommodation ‘problems’ and younsters in their mid 30s lived ‘at home’. Or we joined the Air Force.

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