This is a housing crisis, and without intervention it will bankrupt the welfare state

Locked out of home ownership for a lifetime, the state would be left to foot the bill for Generation Rent when they are retired and still living in the high-cost, high-turnover private rented sector

Hannah Fearn@hannahfearn
Wednesday 03 August 2016 09:08
There could be 3.5 million people retired and claiming housing benefit to pay for rented housing by 2060
There could be 3.5 million people retired and claiming housing benefit to pay for rented housing by 2060

The 30 years of housing boom are now officially over. The number of homeowners is now at its lowest since 1986, declining at first slowly, and now precipitously, after its peak in the year 2003 when 71 per cent of Britons owned the roof over their head. In February this year, just 64 per cent could make that claim – and a considerable proportion of them will be the same individuals who were already on the property ladder three decades ago.

The causes of the home ownership boom are well understood: the right to buy, introduced by Margaret Thatcher, meant that long-term renters in social housing had the chance to become homeowners for the first time; the deregulation of the mortgage market made it easier than ever for prospective buyers to find funding to do so.

The causes of the current housing crisis are equally clear: the lack of investment in social housing over three decades was compounded by the twin effects of the 2009 global economic downturn – a shrinking of the construction industry (no new houses built while the population rose) and the introduction of tougher lending restrictions for mortgages (meaning fewer people had the ability to buy and competition in the private rented sector grew, pushing up rent, meaning renters had fewer savings for a deposit, and… Well, you can see where it goes). So house prices go up, and home ownership goes down.

Until now, those unmoved by the growing number of people locked out of ownership claimed it was solely a problem in the high demand areas of London and the South East. Venture further afield, they said, and you can find what you’re looking for. Not so: ownership levels, we now know, are plummeting in cities such as Manchester and Leeds, too. In early 2016, only 58 per cent of households in Greater Manchester owned their property, down from 72 per cent in 2003 – the same drop in ownership rates as outer London. Populous areas play host to fewer and fewer owners and a generation of renters is now entering its second decade stuck in insecure, short-term accommodation.

The situation is only likely to get worse. Thanks to Brexit, the construction industry is also contracting at its fastest rate for six years. That means fewer homes built in the coming decade, and higher pressure on both the rented and owner-occupied housing stock already in the market.

This is a housing crisis, though it’s still controversial to say so. There are some – including my own esteemed colleagues – who see no problem with a generation forced to rent throughout their lives; who claim that, while shelter is necessary, there is no human right to own a property. That is correct, of course, but it doesn’t mitigate the crisis that a generation of renters will cause.

Even if existing homeowners want to look at the housing situation selfishly – if they don’t believe there’s any need to offer others the same opportunities presented to themselves – there’s still every reason to intervene in the housing market. Because if we don’t, we’ll bankrupt the welfare state.

Most renters in retirement need some support from housing benefit. As rent costs (even in the social housing sector) rise in line with inflation and wages, so those who are reliant on the state pension and their own savings once they’ve retired from the workplace often need help to keep up. At the moment, that’s only a minority of the retired population – and the majority of renters in retirement are in lower-cost social housing. But that’s set to change: with most of "Generation Rent" locked out of ownership but unable to qualify for social housing, they are stuck in the high-cost, high-turnover private sector. More and more housing benefit claimants of working age are actually also in work – they just simply can’t make it pay. If they are still there in three decades, we’re in for some trouble.

Even before the spectre of Brexit cast its shadow over the housing market, it was predicted that the retirement housing benefit bill would reach £8bn by 2060, with 3.5 million pensioners claiming the benefit. That now seems like a conservative estimate. So much for the "triple lock" – this is more like pulling up a great bolted drawbridge on younger people, given how little money would be left in Treasury coffers after the old folks of 2060 are dealt with.

And it’s not just about rent costs, it’s also the problem of short-termism. The spectacle of 3.5 million older people either struggling to find adapted housing that meets their mobility needs in the private rented sector, or turfed out of their homes and expected to start over every 12 or 24 months, is not only morally appalling but also presents central and local governments with a huge and costly burden. There’s only so much that the offspring of Generation Rent (less numerous, one might assume, given the restrictions on the private lives of their parents) will be able to do to help.

As James Lloyd, director of the Strategic Society Centre think tank, put it, in as far back as 2012: “It’s time that we stopped wringing our hands about Generation Rent and recognise that, in the long term, the state is going to be left with a very large bill to pay.” That’s reason enough for even the most self-serving of homeowners to get behind intervention in the housing market and new measures to boost home ownership.

So far, the Government’s investment in giving Generation Rent a leg up into ownership – Help to Buy, the Help to Buy ISA, shared ownership properties and providing guaranteed mortgages – has not been sufficient to manipulate the private market. Given that the vast majority of those interventions have been handled by a Conservative or Conservative-led government, perhaps that’s not much of a surprise. Either way, these measures have proved insubstantial and, for most of the not-yet-owners, almost entirely meaningless. House prices rise, rent prices rise, development drops and the cost to the state goes up and up and up.

It’s time for something different, and something more substantial. It’s time for a proper intervention in the housing market: the mass building of state-subsidised private homes for purchase at sub-market rates. It might not be popular – especially if it is widespread enough to bring down the average house price – but every grumbling existing homeowner should remember this: what costs you now, will save you in taxation in the long term.

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