Martin Arnold brings the pensioner together with the first time buyer in this fascinating article.
He is talking in the FT about the work of the FCA, an organisation that is really getting its act together.
It [FCA] also plans to examine how innovative products, such as retirement interest-only mortgages, could help older people raise money against the value of their home or repay an earlier mortgage that is maturing.
Nikhil Rathi, chief executive of the FCA, said in a speech last month that 43 per cent of people were projected not to be saving enough for retirement despite an expected high rate of home ownership.
“How will households meet retirement goals, needs and potential care costs?”
said Rathi.
“Can some of the nation’s £9tn of housing wealth be unlocked more effectively, and put to more productive use, particularly to sustain living standards in later life?”
The FCA said it would launch consultations on its planned rule changes early next year, including measures to encourage artificial intelligence to be used to improve and speed up mortgage advice.
It aims to start making changes by the end of 2026. It will launch a market study to examine
“how the later-life lending market could develop to meet the different needs of future consumers”
including allowing more holistic advice on the range of financial options available to people in retirement.
It’s a question that many younger people will be asking as property remains in the hands of those for whom ownership has no practical value and plenty of liability. The value of property is not going up.
This may seem a good thing for younger people getting on the housing ladder but an ongoing problem when it comes to the properties they want to buy – the leasehold properties – typically flats which have lagged freehold properties in value growth for many years. We need families having the space of large freehold properties, and not to have to live in their parent’s house while saving for what they need.
Recent research by Harry Scoffin of Free Leaseholders suggests that the freehold properties in this country are owned by those of pensionable age and that the failure of these properties to move into the hands of young families is preventing young families from happening – 43% of young couples without children put this down to having no suitable place to afford to buy to bring children up in.
The FCA are quite right to link the problems with property management for pensioners with first time buyers, the property market could become more better for both groups if finance became better available for young and old.
But we also need to confront the problem that faces older people and that is selling out and moving to leasehold properties is not a good bet, especially if you have spent your life moving up not down the property ladder. Moving into a leasehold flat is not a good option for pensioners and we have to do something to give leasehold its good name. It is not a good option for first time buyers either, they are not wanting to buy leasehold flats and the result is a real issue for the FCA.
It is of course a real issue for those who are looking at the financial security of older generations and worrying about the lack of it amongst those much younger. For those of us looking at the issues of pension adequacy, this is a huge problem a generation or two down the line.
“Reforming the mortgage market can help address the fact that as a society we’re saving too little for later life, yet people have huge wealth tied up in property,” he [Nikhil Rathi] said.
The rules on more flexible products, such as “part-and-part mortgages” on which only some of the loan is repaid before it matures, could be made easier to help more first-time buyers get on the property market.
Other changes being considered by the FCA could help those with variable or lumpy income, such as self-employed people, to get mortgages as well as those who have had bad debts in the past but have since improved their credit rating.
Let’s go back to need of space and where we need to live. The FCA should be encouraging behavior that balances young and old people’s needs . I see too many youngsters waiting to buy a house for a family and too many pensioners sitting on freehold property they can’t properly enjoy.
Explaining London’s Housing Problem: What I’ve Learned
My experience selling my Marylebone apartment highlights something crucial: London’s housing market is not uniform. While the dominant narrative focuses on ever-rising prices, my reality tells a different story. Here’s how I’ve come to understand it:
1. The Geographic Inequality I’ve Witnessed
London isn’t one market—it’s dozens of micro-markets with wildly different dynamics. My 6% price drop in Marylebone over a decade, with agents telling me about other properties down 20%, directly contradicts the simplistic “London prices always go up” narrative. Recent data confirms what I experienced: properties on Marylebone Road declined 16% year-on-year and 29% from their 2021 peak Rightmove, while overall Marylebone prices fell 9.7% in the last year KFH.
What I learned: Prime central London (especially areas where the Mansion Tax bites) has experienced stagnation or decline, while outer zones and certain high-demand areas continue rising. Location is everything.
2. The Supply Constraint Mechanism (What the LSE Research Shows)
The LSE research I’ve been reading provides the theoretical framework for what’s happening. When housing supply is tightly constrained and demand growth is persistent, people expect future rents to rise more than current rents, causing the price-to-rent ratio to increase for extended periods lse. This explains why prices can race ahead of rents in supply-constrained areas.
The research found that 53% of London’s 153% increase in the price-to-rent ratio between 1997 and 2018 resulted from persistent demand growth interacting with tight supply constraints lse. What really struck me: the City of London is roughly four times less elastic in housing supply than Miami, the most inelastic US location lse. We’re uniquely constrained.
3. The Construction Cost vs. Sale Price Gap I’ve Observed
When I look at sale prices of £20,000 per square meter versus much lower construction costs, I see a massive gap. This represents what I call the planning premium—the artificial scarcity created by:
Restrictive planning permissions
Green belt protections
Height restrictions
Conservation area limitations
NIMBY pressures
Slow approval processes
This gap between construction cost and market price is pure regulatory rent. In a functioning market, competition would drive prices toward costs plus reasonable profit. Instead, we’ve created a system that artificially inflates prices through restriction.
4. Why Different Market Segments Behave Differently
The ultra-prime market (where I was):
More sensitive to tax changes (Mansion Tax, stamp duty)
International buyer demand fluctuates with geopolitics
Luxury supply has actually increased through new developments
Brexit and non-dom tax changes reduced foreign demand
I was “lucky” to get out when I did, before these forces fully played out
The middle market (typical London homebuyers):
Still facing a severe affordability crisis
Supply constraints bite hardest here
They cannot easily substitute to cheaper areas without compromising employment access
Price-to-income ratios remain historically extreme
My segment corrected; theirs hasn’t been allowed to because supply is so restricted.
5. Why I Don’t Buy the “It’s Just Cheap Credit” Argument
The LSE research demolishes the “it’s just cheap credit” explanation. Interest rates are national, yet London diverged dramatically from other regions. Moreover, during the financial crisis, rates fell but price-to-rent ratios also fell—exactly the opposite of what the “cheap credit” theory predicts.
If cheap money were the main driver, everywhere would have behaved like London. They didn’t.
6. The Planning System as the Core Problem
The research identifies Britain’s “development control” planning system as uniquely restrictive. Unlike many countries with zoning systems (where you can build by-right if you meet codes), Britain’s discretionary system means:
Every development requires specific approval
Local residents can block almost anything
Uncertainty and delay are built-in
Supply cannot respond to demand signals
This is why I see that huge gap between construction costs and sale prices. We’ve made it nearly impossible to build, so prices reflect scarcity rents, not building costs.
7. My Proposed Solution: Factory-Built Homes on Council-Owned Brownfield Sites
Here’s where I think we can make real progress. The solution I’ve been advocating addresses multiple problems simultaneously:
Factory-built (modular) homes offer several advantages:
Cost reduction: Factory construction can be 30-50% cheaper than traditional building, directly addressing that construction cost vs. sale price gap I mentioned
Speed: Homes can be manufactured while site preparation happens, cutting delivery time dramatically
Quality control: Factory conditions mean consistent quality and fewer defects
Weatherproof construction: No delays from rain or cold
Reduced skilled labor bottlenecks: Factory work is more productive and easier to staff than traditional construction sites
Council-owned brownfield sites solve the planning bottleneck:
Local councils already own substantial brownfield land portfolios
Bypasses NIMBY pressures: Council-owned land means the landowner and planning authority are aligned
Pre-approved development: Councils can designate their own sites for housing development
Infrastructure coordination: Councils can ensure utilities, transport, and services are planned holistically
No land banking: Public ownership means sites get developed rather than sat on by speculators
Pension fund capital makes the economics work:
Long-term patient capital: Pension funds need exactly the kind of stable, long-term returns that rental housing provides
Scale matching: Pension funds need to deploy large amounts of capital; housing development can absorb it
Inflation hedge: Property assets protect against inflation, which pension funds need
Social benefit alignment: Many pension funds (especially public sector ones) have mandates around social investment
Rental income stream: Provides steady cash flow matching pension payment obligations
8. Why This Approach Circumvents the Key Barriers
This model sidesteps the main obstacles that have prevented supply response:
Planning delays: When the council owns the land and grants the permission, the typical 3-5 year planning battle disappears.
Land assembly costs: No need to buy scattered parcels from multiple owners at inflated prices reflecting planning premiums.
Construction cost inflation: Factory building locks in costs and reduces the skilled labor premium we’re currently paying.
Financing constraints: Pension funds provide patient capital without the short-term pressure that drives up costs.
NIMBY opposition: While not eliminated, it’s much harder to block development on council-owned brownfield than on greenfield or privately assembled sites.
9. The Numbers Make Sense
Given my observation of £20,000/sqm sale prices with much lower construction costs:
Factory construction might cost £1,500-2,000/sqm
Site preparation and infrastructure on brownfield might add £500-1,000/sqm
All-in costs of £2,500-3,000/sqm
Even renting at yields attractive to pension funds, this pencils out
If pension funds target 5-6% yields (reasonable for long-term property), they could:
Build for £2,500/sqm
Rent at £150/sqm/year (6% yield)
Provide housing at less than half the market rate for equivalent new-build
Still deliver the stable returns pension funds need
10. What This Means for Policy and My Own Decisions
For policymakers: Unless Britain tackles barriers preventing new housing where it’s most needed, the affordability crisis will persist lse. My factory-built, council brownfield, pension-funded model offers a way to do this without waiting for comprehensive planning reform.
For my own planning:
I now recognize that my decade of price decline wasn’t bad luck—it reflected real shifts in my market segment
My agents were right that I got out at a good time
That £20k/sqm versus construction cost gap tells me these prices are policy-dependent, not fundamental value
If we ever deployed factory building at scale on council brownfield sites, it could dramatically increase supply and put downward pressure on prices across the board
11. How I’m Thinking About Retirement Planning
When I consider incorporating jurisdiction and planning into my retirement equation, I’m thinking about:
Diversification is crucial: My geographic concentration in one London micro-market carried significant risk that I’ve now escaped
Policy risk is real: Mansion taxes, stamp duty changes, capital gains treatment can all shift dramatically—I saw this firsthand
Supply risk: If the factory-built council brownfield model I advocate actually gets deployed at scale, it could suppress prices in certain segments
Liquidity matters: I learned that ultra-prime property is harder to sell quickly
The construction cost gap: This suggests prices could fall dramatically if we successfully increase supply through new delivery models
My Conclusion
London’s housing problem isn’t simply “not enough homes.” Based on my experience and research, it’s a complex interaction of:
Extremely restrictive supply in a system uniquely resistant to responding to demand
Geographic fragmentation creating winner and loser areas (I was in a loser area)
Policy interventions (taxes, demand-side measures) that affect different segments differently
A massive wedge between construction costs and prices that represents pure regulatory rent
My Marylebone experience—negative returns over a decade despite London’s “housing crisis”—perfectly illustrates that the crisis manifests as lack of supply response and affordability problems, not uniform price appreciation. My ultra-prime segment has been re-priced downward, while ordinary Londoners still cannot afford to buy.
I got lucky with my timing, but not for the reasons people assume. I escaped before the full weight of tax changes and demand shifts hit my segment. Meanwhile, the fundamental problem—our inability to build housing where people need it—continues to worsen the affordability crisis for everyone else.
But here’s the thing: we don’t need to wait for comprehensive planning reform to make progress. Factory-built homes on council-owned brownfield sites, financed by pension funds seeking stable long-term returns, could deliver housing at a fraction of current costs while bypassing the planning bottlenecks that have strangled supply. The economics work, the sites exist, and the capital is available. What’s missing is the political will to challenge the current system that enriches landowners and property holders at the expense of everyone else.
That massive gap between construction costs and sale prices? It’s a policy choice, not an economic necessity.
https://blogs.lse.ac.uk/politicsandpolicy/what-the-price-to-rent-ratio-reveals-about-britains-housing-crisis/
One observation on pension funds providing some of the capital, John, is that it raises the possibility of pension trustees, as remote landlords operating through their agents, having occasional disputes with individual tenants.
The potential for reputation risk, as we have seen from the ground rents and leasehold modifications controversies (eg Railpen), seems far greater when tenants (of residential property) are individuals or families, rather than when tenants (of commercial property) are businesses.
I envisage putting the local authority in the position of managing the estate. No trustee should suffer reputational damage. Social and open market needs would be determined locally where there are no close relatives, a reversionary interest could be taken. (The Crown has enough.)