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

English Teacher

£85 - £140 per day: Randstad Education Chester: English Teacher The school, th...

Maths Teacher (One day per week)

Negotiable: Randstad Education Manchester: Maths Teacher (one day per week) Gr...

EBD Teacher

Negotiable: Randstad Education Manchester: Science Teacher Greater Manchester

Humanities Teacher

£120 - £162 per day: Randstad Education Hull: Humanities teacher required for ...

Day In a Page

Read Next
 

i Editor's Letter: Take a moment to imagine you're Ed Miliband...

Oliver Duff Oliver Duff
 

Letters: No vote poses difficult questions – so why rush?

Independent Voices
Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits