The renting makeover
Mira Bar-Hillel
Policy without principle is like a house without foundations’, David Cameron said in his ‘Bring me sunshine’ conference speech in Bournemouth.
Well, he should know. The young Tory leader’s own recently acquired £1.1 million home in Kensington is literally being undermined so that a basement room can be added to the already substantial house. The reason for this expensive and disruptive exercise is simple: London prices are so high that it is more cost-effective to extend, even downwards, than try to move up the property ladder.
Central London is now virtually a no-go area for anyone other than Russian oligarchs, multinational executives or City whizzkids. In fact, at today’s prices, monthly mortgage repayments even in London’s outer suburbs constitute more than 70 per cent of average take-home pay, with house prices on average more than nine times salaries.
Worse still — in Britain as a whole, according to research by management consultants Hay Group, average house prices are now six times annual income and mortgage repayments swallow more than half of take-home pay. No wonder Citizens Advice Bureaux are warning of a repossession crisis around the corner: more and more borrowers are defaulting and the figures are the highest since 2001.
Existing homeowners are cushioned to an extent by properties they may have bought many years ago. Even they will struggle to move up the ladder, however, as estate agents’ fees and stamp duty take their considerable toll. But first-time buyers, on whom the entire market depends for its momentum, are, well, stuffed. Half of them now require more than a little help from their family and friends, and in the South this figure rises to two out of every three first-time buyers. As salaries continue to lag behind house prices, the situation becomes increasingly critical and key workers in essential public services are leaving London in large numbers, squeezed out by the inability to buy or even rent in the capital.
So how is the government responding to this crisis? By launching ‘initiatives’, that’s how. Most of these initiatives come with the optimistic word ‘Homebuy’ in their title. Another thing they have in common is that they don’t work. In August 2005 the government announced plans to help 100,000 more people on low incomes into home ownership by 2010. The flagship scheme, Open Market HomeBuy, was meant to help people buy a 75 per cent share in a property, with the help of an ‘equity loan’ to be shared between private lenders and the government itself.
A year later it emerged that, in spite of costing the taxpayer £300 million, the scheme has helped fewer than 8,500 people buy their homes. The New Labour solution: relaunch the failed scheme again, preferably on the first Monday of the Tory party conference.
Not that the Tories are doing much better. They seem to be trying to recreate the Thatcher Right-to-Buy miracle, but that train left the station a long time ago. The Big Idea before the last election was to extend the Right to Buy to housing association tenants. Shame that no one bothered to tell Michael Howard, QC that four out of five such tenants are on benefits.
Having quietly buried that one, this summer David Cameron and Michael Gove came up with another winner: converting council rents into mortgages. ‘Millions of people would be able to pass property on to future generations,’ the Old Etonian said.
Well, not really. When an identical scheme was launched by the Major government in 1993, it aimed to turn 1.4 million tenants into new homeowners. It was quietly abandoned two years later, however, having cost millions while attracting fewer than 1,000 tenants. Prices were too high, and rents too low. Since then house prices have nearly trebled, while social rents have only kept up with inflation. It didn’t work then, so how can anyone imagine it will work now?
Both parties have policies on housing, and they are based on a simple principle: more homes without more public spending. The traditional way to put out the rising flames of the housing crisis was to build council houses for people to rent at affordable levels. Neither party has any intention of spending public money doing this, and they are both fiddling around to divert attention away from this simple fact.
What I don’t understand is why no one is even considering the obvious solution, which is to attract major private investors to build homes to rent, as is the norm in the rest of Western Europe, North America and Australia. In those countries about 35 per cent of people rent privately at any one time, and in the big cities this often rises to more than 50 per cent. Apart from creating an open market with plenty of competition and genuine choice for renters, those countries have also avoided the UK’s obsession with homes as an investment and rollercoaster house prices.
Before they enter this market, however, developers will require two things, the first being affordable land. This could be achieved by forcing another government Big Idea, a strange body known as English Partnerships, to make available some of the land it has been buying and not using. The land could be covenanted to restrict the use of homes built on it for renting only, in exchange for which developers would be allowed to buy it for less and build to higher densities. In this way they would be able to make a profit while charging lower, more affordable, rents.
The second requirement is a change in the law to require tenants, as well as landlords, to abide by the letting agreements: pay the rent on time, behave in a civilised manner and leave at the end of the term or when served notice. Finally, the policing of this system must be taken away from the overburdened civil court system and the overpaid lawyers who feed on it and given to special housing tribunals, which already have jurisdiction in many other landlord and tenant matters. Unlike the courts, these tribunals could give both sides quick and effective justice and perhaps even encourage responsible investors to take a punt on something which could be the only solution to the housing crisis in the South of England and beyond.
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