Lansons Director Ralph Jackson takes a look at the property market - still one of the most divisive issues in the UK...
The baby boomer generation knows all about property. In fact, they have probably not stopped talking about it since they first rented or bought - discussion on this topic is a national obsession. As ever with a popular topic that frustrates and excites the country, our politicians are never far away with an opinion on it too. The problem is, as I see it, that this masks a more important debate about a country divided by property ownership and struggling with debt.
So as we enter a General Election period where property is central to all parties’ agendas for growth, I hope we will have a mature debate but I fear that will not be the case. At a time where one would hope economic recovery sees a resurgence of aspiration toward home ownership, I can only see a generation despairing of even affording to rent. The 'stay at home' generation could become the norm as a combination of unaffordable properties, crippling levels of urban rents in locations where the desirable jobs are, and a level of personal debt that begins with further education but does not probably end until you enter your 40s, means that property ownership is only a dream for many.
This is not good for our society, or our economy. The property sector relies upon consumption, so if activity is suppressed then the supply chain is impacted; the finance sector, in particular, with a mosaic of mortgage and other products will have to seriously rethink as supply falls away in years to come.
Let us consider the context of the last few years. The baby boomers are the ones with the real property wealth: over one third of the current 14+ million of home owners are aged over 65. Just 1.4 million of home owners are aged between 25 and 34. In fact, according to a survey by the Halifax last year, half of the 20-35 year olds in London they polled believe that ‘renting will be the norm in their lifetimes’. Home ownership is falling – it reached its lowest level last year in 25 years – while the Facebook generation of renters is increasing: the numbers in private rented accommodation in the UK has grown from just over 2 million in 2002/03 to nearly 4 million last year.
The cosy picture of the UK being a nation of contented homeowners is, therefore, not really so true. According to statistics on personal debt today, someone in every twenty eight households is technically in debt; this covers not just mortgage debt, but a whole host of other unsecured debts that threaten the viability of the homeowner to cope. As we know, the 2008 recession, partly built upon over-extended homeownership debt, led to a series of repossessions – peaking at 13,200 in the UK in 2009 – which in some cases has not been solved six years later. A consequence of this activity is empty properties, the UK alone having over 700,000 of the 11million or so that exists across Europe.
I think this paints a bleaker picture of Britain, one where the nation is divided on those who have had the fortune to become home owners, and those today that never will be. 'Generation rent' and 'Generation debt' are now the norm. Rising prices, too, mean the dream remains distant: those who are buying for the first time this year are paying on average £22,000 more than they did the previous year. In London, the throbbing heart of the property bubble, average house prices are now over £500,000 and have risen 18% from the previous year. Wage inflation cannot keep up.
And what is the political response to all of this? Help the first time buyer (Help to Buy scheme), restructure punitive property taxes (stamp duty), but threaten to punish the wealthy (mansion tax). This is all good – you can make up your own mind on the implications of a mansion tax for you – but is sadly part of an uncoordinated set of random policies which revolve around impacting supply with little regard to demand. And the demand side, as indicated, is the real problem for a market which relies on business flows, and where other business sectors rely on that stimulus too.
Sadly I do not have a prescription for what I see as a current and future problem. But I believe there are two areas of action that at the moment are disconnected but should help. The first is a coordinated approach to housing supply involving builders and housing developers in the private sector focusing on affordable homes, the planning system helping to bring empty homes back into use, public sector projects (ie where key workers will be located) aligned with regional development plans, and a central Government oversight for a UK housing (ownership and rental) strategy.
The second relates to the plight of the young and those either renting or struggling to save for a deposit. Government policy has to look long term at how young workers who accumulate debt early in their careers can still aspire to home ownership. They will not be able to save, though auto-enrolling into pensions will be their norm and may help, so a property asset may be their only valuable one. Short-term intervention on renting and measures to assist first time buyers are of course welcome but the country needs to be innovative; for example property bonds purchased at a young age and redeemable against future property?
It is true that property ownership will lead to future debts and not always an asset that will increase ad finitum. But for some, possibly many, they may not even have the possibility of such an asset.
Ralph is a Director at Lansons. He advises clients on public policy and reputational matters, including those across the financial services spectrum, in property and infrastructure, and in professional services. If you'd like to discuss any of these issues, email Ralph at ralphj@lansons.com