Dominic Lawson: Why not have a return to renting?

If Grant Shapps's aim is to end the obsession with owning property, he should worry less about how people get on the ladder

Share
Related Topics

It's a cruel politician, one might think, who would attempt to still the most popular of all middle-class dinner-table conversations. Yet when that topic is the ineffably boring one of who around the table has made how much out of the rise in property prices, we should all be grateful for a change of subject. Schools, the weather, or even a period of reflective silence would be a welcome alternative. For this desirable development would be the consequence if the Housing minister, Grant Shapps, has his way.

At the weekend Mr Shapps declared that his priority would be to see "house-price stability" and an end to the rapid rises which had characterised the market during the 10 years leading up to the credit crunch. Actually, given that the minister went on at some length to bemoan that it was now all but impossible for would-be first-time buyers without parental assistance to acquire a home, it's clear that what he is really advocating is a prolonged period of stagnation in property prices – that is, substantial falls in real terms; but stability is a much more politically appealing word than stagnation.

As it happens, Mr Shapps is calling for something which is happening anyway; since 2007 British residential property has lost 20 per cent of its value in real terms. Unfortunately for the first-time buyer, the banks and building societies have become much more careful about their lending; gone are the 100-plus per cent mortgages, so even though property has become more affordable it has simultaneously become less attainable.

This is yet another reason for the banks' present unpopularity. I have some sympathy for their predicament, however: they have been criticised (rightly in many cases) for their improvident lending during the credit bubble, and told both to build up their own equity base and to tighten their lending criteria in the property market. Now they are being criticised for complying with these desiderata. Their real point is that when the conventional view was that residential property prices would always rise in real terms, it made sense to them to lend 100 per cent of the value, because even if the borrower were to default in a few years' time, the banks could get their money back by foreclosing and selling the property.

Yet if Mr Shapps has his way, and there is a prolonged period of property losing value in real terms, then the banks can no longer have that confidence as the ultimate owner, and will require a much higher contribution to the original purchase price on the part of the borrower. To this extent, the Housing minister's aspirations are in direct conflict with each other.

Something else that he said made better sense, however: Shapps suggested that young people should break with their parents' generation's obsession with property as an investment, and see it just as "something to live in". If that is his aim, then he should worry less about the ability of young people to get on the housing acquisition ladder: rent alone gives you "somewhere to live", without the need to drum up sufficient cash to impress a building society.

Historically, however, the Conservative Party has been profoundly associated with the idea of turning people from tenants into owners, starting with Benjamin Disraeli, who saw his party's future as inexorably tied to the creation of what he called "a property-owning democracy". This, of course, was during the era when ownership of property was linked to the right to vote. Yet the basic argument – that people with the responsibilities of ownership would be more likely sympathisers with a political party linked to capital rather than labour – was also the inspiration for Margaret Thatcher's "right to buy" policy, not to mention her enthusiasm for tax relief on mortgage interest repayments.

New Labour desperately wanted to seize back this political territory, which helps to explain why Gordon Brown as Chancellor did nothing whatever to discourage the house price boom, and denounced Vince Cable when the then Liberal Democrat Treasury spokesman warned on the floor of the House of Commons that it was both unwise and unsustainable.

To be fair to Mr Brown, the global financial tsunami of the credit crunch was caused not by what went on in our own housing market, but in the United States. That, in turn, had indeed been a direct result of government policies. The Democratic Party in particular had promulgated regulations that demanded the banks lend in ever greater proportions to the least well off. For example in 1996 the Housing and Urban Development Agency instructed the two federal-backed mortgage firms, Fannie Mae and Freddie Mac, to make at least 52 per cent of their loans to borrowers with below-average incomes. The result was that by the end of 2007 Fannie Mae alone was guaranteeing no less than $56bn in sub-prime mortgages.

Seen in this context, the sub-prime implosion was not just a fiasco for banks, but also one for government intervention in the housing market, albeit with the apparently uncontroversial objective of spreading home ownership to groups in society which hitherto had been excluded from the "property-owning democracy".

The strange thing, in this country at least, is that it was in any case far from certain that owning property rather than renting had been the sure-fire winner of popular belief. A fascinating investigation conducted jointly by MoneyWeek magazine and the BBC's Money Programme in 2008 suggested that over the period from 1980 to 2000, a person who rented rather than bought property (and put into an equity fund the money saved through lower housing costs) would actually have been better off than his property-owning neighbour. Those of us who lost substantial sums in the property slump of the early 1990s would not need reminding of that; and an earlier generation would have regarded the idea of staking one's entire financial security on dividend-free investments in bricks and mortar as quite perverse.

My paternal grandfather, for example, lived and died without ever having owned any property; today it would seem very odd for a member of the prosperous middle classes to remain a tenant all his days. Yet he was a businessman who felt that any spare cash he had should be invested in his own little company, where, he hoped, it would grow more quickly in value and possibilities than anything so inert as a mere dwelling.

Moreover, although his motives were not primarily to benefit the country as a whole, there can be little doubt that if more money were diverted away from property and into productive enterprises, we would almost certainly have a more dynamic economy: as Adam Smith observed well over two centuries ago, a dwelling is a fine thing for its inhabitant, but contributes nothing to anybody's revenue, including (unless he rents it out) his own.

Unfortunately, the notion of property ownership as the key to personal financial self-fulfilment is by now so deeply ingrained in popular consciousness that it will take a generation ofdepressed house prices for that received opinion to weaken its grip on the middle-class imagination. On the other hand, it could indeed be that we are in for a very long period of exactly such stagnation: in which case Mr Grant Shapps can announce that everything has gone according to plan.

d.lawson@independent.co.uk

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: Trainee Vehicle Inspectors / Purchasers

£20000 - £40000 per annum: Recruitment Genius: Trainee Vehicle Inspectors / Pu...

Recruitment Genius: Trainee Vehicle Broker

£12000 - £18000 per annum: Recruitment Genius: A Trainee Vehicle Broker is req...

Recruitment Genius: Customer Service / Data Capture / Telesales

£12000 - £18000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Front Of House Team Member

£16500 - £18000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

Read Next
Kennedy campaign for the Lib Dems earlier this year in Bearsden  

Charles Kennedy: A brilliant man whose talents were badly needed

Baroness Williams
Nick Clegg (R) Liberal Democrat Leader and former leader Charles Kennedy MP, joined the general election campaign trail on April 8, 2010  

Charles Kennedy: The only mainstream political leader who spoke sense

Tim Farron
Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific