Three million people in Britain became home-owners for the first time during the 1980s, a rise of more than 25 per cent. More than a million of these new owner-occupiers were local authority tenants exercising the 'Right-to-Buy' their council houses at substantial discounts to their market value.
The Conservatives as good as implied that home ownership was somehow morally superior to renting - especially from the public sector. The process certainly succeeded in boosting Tory electoral support, but it also dangerously destabilised the economy into the bargain. The boom and bust in the housing market from the mid- 1980s onwards mirrored and exacerbated the boom and bust in the rest of the economy.
With the housing market still struggling to recover from this roller-coaster ride, it is tempting to dismiss the episode as a historical curiosity resulting from a one-off burst of financial deregulation in the early 1980s.
But Professor Duncan Maclennan, of Glasgow University's Centre for Housing Research and Urban Studies, argued in an important study for the Joseph Rowntree Foundation last week that most of the underlying factors that produced the boom and bust are still in place and threaten a repeat performance. *
Most importantly, the psychology of the 'property-owning democracy' appears to have survived the ups and downs of the last 10 years very much intact, despite the fact that the very people who were lured by the property-owning dream were the ones who suffered most during the slump.
Most households still regard home-ownership as their ideal form of tenure, even though they are slightly more suspicious of claims that buying bricks and mortar is a sure-fire investment. First- time buyers are borrowing just as much in relation to the value of their homes as in 1982, and deposits are still relatively modest.
The only real evidence that people have learnt from the boom and bust has been their desire to limit their exposure to changes in interest rates by opting for fixed- rate mortgages.
Around three quarters of fixed-rate borrowers are on contracts with a duration of three to four years. This means that economic recovery will be more difficult to restrain with gradual interest rate increases in the next few years. It also means that hundreds of thousands of people may face dramatic leaps in their mortgage payments when their contracts come up for renewal or renegotiation. As housing transactions tend to bunch at particular times, this could have sudden and unpredictable effects on consumer spending later in the decade.
The dice of the tax system are also still heavily loaded in favour of owner-occupation. Tax relief on mortgage interest payments has been partially phased out, but even when it disappears landlords will remain at a disadvantage to owner-occupiers because they have to pay income tax on the rents they receive and capital gains tax on the rise in the value of their assets.
While owner-occupation retains its tax advantages, renting from the public sector has become more difficult and more expensive. Rents in the public sector have increased by half since 1989, and people with jobs are increasingly being frozen out as potential tenants. There has also been little growth in the private rented sector, either in the number or variety of flats and houses offered.
'The tightening, non-adjusting supply of rental housing in Britain which so characterised the 1980s is set to continue', Professor Maclennan argues. 'This will inevitably mean that the next downturn in national economic activity will bite even more deeply into the margins of home-ownership and more quickly, given less job security.'
Professor Maclennan demonstrates the folly of the Conservative home-ownership fetish effectively by comparing the experiences of people in three British towns during the recent boom and bust: Glasgow, where even at the end of the boom half the population was renting from the public sector, and Bristol and Luton, where the figure was nearer a fifth. Higher owner-occupation in Bristol and Luton aggravated the economic and social disruption of the recession, while the greater tendency to rent from the public sector ameliorated it in Glasgow.
House prices rose much more dramatically in the South than in the North (including Scotland) during the boom, with real capital gains a third higher on average. More than 60 per cent of home- owners in Bristol borrowed against the security of the rapidly rising value of their houses, compared with 30 per cent in Glasgow. But while house prices rose by 25 per cent in Scotland between 1989 and 1992, they fell by 20 per cent in the South. Less than 20 per cent of people in Glasgow cut their spending because they felt less wealthy, compared with 40 per cent in Bristol.
Demography and labour market conditions help explain why prices fell relatively far in places such as Luton and Bristol. More people there were forced to move house because they had children, saw their marriages break up or had to move to find jobs after becoming unemployed. A quarter of first-time buyers in Luton who had full or part-time jobs in 1989 had lost them by 1993, compared with only a sixth in Glasgow.
The impact of the downturn was therefore felt hardest by those who were most vulnerable. By 1993, more than one household in three in Luton said they knew someone who had had their home repossessed, compared with one household in 10 in Glasgow.
This has important implications if, as Kenneth Clarke suggested in his Mais lecture earlier this year, we are moving into an era in which international competitiveness will demand flexibility and a willingess among individuals to be more mobile and to accept spells of unemployment. The threat is that the experiences Professor Maclennan found in Bristol and Luton will become more severe in those places and more the norm throughout the country.
This implies an expansion of what Robert Reich, the US Secretary of Labor, has christened the 'anxious class'; people with family responsibilities who are having to cope with a more flexible but less stable labour market. So a policy that prefers home-ownership to renting is asking for trouble.
Mr Clarke appeared to recognise this problem, arguing in the Mais lecture that: 'The provision of mortgages, therefore, will increasingly have to take into account variable income streams'.
But this is not enough. The Government should help redress the balance between renting and owner-occupation, perhaps by including a notional sum for rent when assessing the income liable to tax of owner-occupiers, or by giving extra support to landlords.
There is also a strong case for limiting rises in public sector rents: Oxford Economic Forecasting calculates that a 10 per cent rise in weekly rents this year would add 0.3 per cent to the retail price index, cut national output by up to 0.2 per cent a year and cost the Treasury pounds 100m - because the cost of extra Housing Benefit payments would outweigh the extra revenue from rents.
The treatment of mortgage holders who get into trouble is more problematic. Professor Maclennan argues that the Government should continue to pay the mortgage interest payments of Income Support recipients, but there is a case for ensuring that everybody has to pay at least a proportion of their mortgage interest to prevent this assistance from being exploited and from helping to keep house prices artificially high.
Calls to prevent a fresh boom in the housing market may seem academic when house prices appear to have stalled. But in housing policy as in so much else, we should remember Nigel Lawson's axiom when he was a financial journalist: 'The Treasury always does too little too late or too much too late'. The time to act is before the next boom gets under way.
* 'A competitive UK economy: the challenges for housing policy', Joseph Rowntree Foundation.
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