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How high rents trap would-be homeowners

August 26, 2012 12:05 pm

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Britain’s housing crisis continues to deteriorate. The latest twist was the revelation that the cost of renting in the private sector has risen for the fourth month in a row. Average rents now stand at their highest ever recorded level.

It seems almost insane, but nowadays most homes being advertised for rent are often more expensive than what the equivalent mortgage repayments would be on the same property.

Consequently, large numbers of would-be owner-occupier’s are trapped and unable to get a foot on to the first rung of the property ladder. The high rents leave insufficient disposable income to save for the huge deposits demanded by banks and building societies to obtain a mortgage.

The absurdity of this situation was highlighted in the Resolution Foundation’s ‘Squeezed Britain’ report earlier this year. It found low and middle income households would need to save for 22 years for a deposit on an average first home, compared to three years when Tony Blair was prime minister.

The same report found that nearly half of all low and middle income earners aged under 35 are renting. This represents a threefold increase since the late 1980s when the figure was only 14 per cent. And in the past six years the number of home owners in this age and income group has plummeted from 51 per cent to just over a third.

Margaret Thatcher’s 1980s rhetoric about a property owning democracy has turned into a 21st century sick joke for millions of aspiring home owners. The Government’s shamefully pathetic and counterproductive response to this calamity is destroying people’s hopes and dreams.

Its reaction to rising rents is to impose a housing benefit cap. But it was a previous Tory housing minister, Sir George Young, who in January 1991 said:

“If people cannot afford to pay market rents, housing benefit will take the strain”.

And Government has set its new definition of ‘affordable rents’ at 80 per cent of market rents, which in some areas is actually above its own housing benefit cap. Consequently, even people living in social housing in these areas will find it increasingly difficult to save for a deposit to buy a house on the open market

Downing Street’s solution to the woefully inadequate supply of social housing is to endorse a rightwing think tank’s recommendation to build cheap houses by selling off council houses in expensive areas. But such an approach would undermine balanced communities and would not release anywhere near enough funds to deal with the scale of the problem.

In one of the more affluent suburbs in my home city of Derby for example, there are only around 30 council houses, and all of them are occupied. Even if those tenants were forcibly evicted and rehoused elsewhere in the city, the capital receipts from selling these homes would make little impact on Derby’s council housing waiting list.

It is time for a radically different approach. We need action to address the scandalous mortgage drought, a determination to build desperately needed homes and an end to the ideologically driven attacks on low and middle income households.

Chris Williamson is the Labour MP for Derby North

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  • Theo Blackwell

    I’m not sure the solutions you propose adequately address the problem, especially in London and the South East (and in cities generally).  

    There has been a woeful under-regulation of the private rented sector, and a continuing aversion by our (Labour’s) policy to provide better solutions – because this is seen as a cap of opportunity.  Pretty soon the levels of rents and inability of a whole new generation to own their own home will pressure us to turn the tables on this position.

    Renting for many is not only expensive  it is also poor value for money.  

    - Rent moderation introduced.  It works in Sweden and most western cities have some form of rent controls.  London is a bit of an exception.  Areas of high pressure  e.g. London, should be zoned. 
    - All landlords and letting agents should be registered. 
    - Housing benefit should only be paid to landlords who improve their homes to ‘Decency’ standards.  This would end the scandal of the state coughing up cash by the month for pretty low-quality housing and give a nice little boost to the home improvement and energy efficiency sector.    

    The unregulated nature of this sector has meant that, for many, the rational choice was to invest in property (inherently unproductive) rather than in the stock market (or their own pensions).  

    Why we think that private rented housing should not be regulated, while energy, water, buses, trains, mobile phone tariffs, broadband etc are is untenable – and we need to develop some answers.  

  • Brumanuensis

    Let’s all laugh at Grant Shapps:

    http://fullfact.org/factchecks/Shapps_Dromey_housing_rent_prices_rising_falling-3718

    http://www.bbc.co.uk/news/business-18923014

    I know it’s not very helpful, but I can’t help it.

  • aracataca

    OK Chris but you have outlined a wish list not a list of solutions or how we would bring these ‘solutions’ into effect. Let’s be honest it’s taken 30 years to get into this mess and it’s going to take 30 years to get out of it (35 if you accept that there is going to be no fundamental change in the direction of housing policy under this government).

  • aracataca

    Pre-Thatcher we did have rent controls. The response of a good number of landlords in London was to apply pressure on rent controlled tenants to move out of their properties (most commonly through financial inducement but sometimes through physical threats and violence, see Rachman in the 1960s) . The landlords would  then leave the properties empty so that they could sell them during periods of rapid house price growth. The consequence of this was that in a number of areas in London there were a large number of properties that were empty for years on end as there was little or no incentive for landlords to rent them out. It is not inconceivable that such a scenario would be repeated if rent controls were reintroduced. 

  • PeterBarnard

    I’d be more sympathetic to listening to a Labour MP going on about housing under the Conservatives/Coalition if the same MP would admit that (i) the stock of private rented housing almost doubled under Labour 1997-2010, and (ii) the stock of “social housing” actually fell under Labour 1997-2010.

    Council houses in particular took a massive hit : there were 3.4 million council houses in 1997 and just 1.8 million in 2010 (minus 1.6 million, and not compensated by an increase of 1.2 million available via Housing Associations).

    These are the figures for England only ; not through any prejudice, but because when I looked at the figures a few months ago, consolidated figures on the DCLG website for the UK as a whole in 2010 were not available.

    For owner-occupiers, Labour 1997-2010 is the first government since 1951 that has presided over a fall in the proportion of owner-occupiers (68.4% in 1997 vs 65.2% in 2010 ; again, England only).

    • PeterBarnard

      And, of course, Labour 1997-2010 did nothing to frustrate the disastrous rise in house prices between 2001 and 2007.

      Why 2001? Because that was the last year that house prices were something close to an appropriate and affordable ratio of average house price : average wage.

      • aracataca

         But what should it have done? Raise interest rates? This is now in the gift of the central bank and coordinated internationally, ie the BoE will raise and cut its interest rate in relation to what the Fed and the ECB does with its interest rates. Build more council houses? Would this have really affected house price  rises in an environment of cheap and easy loans within a booming economy?
        The fact is that the roots of the current crisis lie in the great sell off of social housing under Thatcher, the decades long absence of a regional development policy with economic expansion and development being almost entirely focused in the South East, and the decade long prevalence of cheap and easy loans given out by a deregulated banking sector. The last of these issues appears to have been resolved via the bankruptcy of the banking industry. It’s time to address the other two issues but it’s going to take decades to turn around housing and development policy. Frankly the issue of the private landlord is largely irrelevant and taking short term measures against them may prove to be counter-productive.   

        • PeterBarnard

          My main point, Aracataca, was that as Labour MPs and others in labour bewail the shortage of “social housing,” Labour was in office for thirteen years while the current situation was developing. Whatever wrongs regarding housing may have been committed by Mrs Thatcher, thirteen years is a pretty decent length of time to address, if not rectify, those wrongs, and an actual reduction in the supply of low-rental public (and quasi-public) housing does not appear to me to be the right way of going about things.

          Certainly – for me, at any rate – it is a funny sort of Labour government that increases the “private landlord class.”

          On interest rates, you are correct that they are set by the BoE/MPC. However, the connection between interest rates and house prices is not always clear-cut. You only have to look at interest rates since 2008 and now – falling – and house prices since 2008 – also falling, to see that the connection is not automatic. Also, interest rates (in the shape of retail banks base rates) rose steadily from mid-2003  to  mid-2007, exactly at the same time as house prices were going stratospheric.

          • aracataca

            You are quite correct in suggesting that there has been a disconnect between interest rates and house prices since 2008. This is because the size of deposits required to obtain loans have quadrupled in that period and living
            standards/disposable income is falling.I think you will find that interest rates remained at a historic low during the 2003-2007 period. Of course the primary purpose of a Labour government should not be to increase the private landlord class but then again I would dispute your suggestion that they are a ‘class’ as such. In terms of current internal party debate much of the focus is on expanding social housing.Regrettably you have not said what Labour should have done  that it did not do. 

          • PeterBarnard

            “It’s too late now,” as that policeman said in “Pirates of Penzance,” but Labour should not have let the ownership of residential housing develop the way that it did.

            What this would have meant in practice, I don’t know, but there’s an army of policy makers in DCLG and HM Treasury who could have thought of something.

            One thing that does strike me is that a dwelling built and owned by the public sector attracts rent back into the public sector ; housing benefit that finds its way into the bank account of a private sector landlord is lost to the public sector, and from that viewpoint, public sector housing has an economic benefit.

  • http://twitter.com/redrenie24 Renie Anjeh

    I agree. Labour should propose rent controls, but it can’t be arbitrary it has to be based on wages and inflation so we have a Living Rent. The IPPR said we should merge housing benefit with the housebuilding budgets and devolving it to local councils, so they can have reponsibility as to what proportion is spent on subsidising rents or building new homes and housing benefit in its new guise should be paid directly to landlords. I think a system of licencing through a national register would be good whereby you can only recieve any money from the State in regards to rent, if you meet the Decent Homes Standard.

    • John_Dore

      I disagree, rent controls would have disastrous consequences for the wider economy. The economy cannot sustain a significant reduction in house prices. The market would collapse / or be impacted severely: This would have wider implications for the economy and demand. 

  • Serbitar

    What I expect from the next Labour Party manifesto will be some kind of flaky financial scheme of help to a enable a small select group – some tens of thousands of children of the squeezed middle – to get their feet on the bottom rung of the “property ladder” coupled with no fair rents policy, or rent controls, and no mention of any programme in respect to any new build of affordable rented social housing designed to help the astronomically large and growing  group of citizens who will never be able to own a home of their own and forced to rent properties insecurely from some landlord or other for the duration of their lives.

    The Coalition has only existed for a little over two years and although their misrule has been legendary they haven’t been in power for long enough to be blamed for the absolutely disgraceful housing crises that now blights lives and has hamstrung the nation’s economy. 
    Labour deserves full credit for that by abrogating its responsibilities and breaking its promises as far as housing goes for every moment of its THIRTEEN YEARS in office when the nation was behind it and the Labour government could have done so many things to have permanently improved housing opportunities for millions of men, women and families across the country.

    Shame on the Labour party and its leadership for this shabby dereliction.

  • trotters1957

    At some point we have to bite the bullet and release some of the Green Belt for building land.
    Our towns and cities are surrounded by farm land much of which is underused or not used. Where I live you can drive for miles without seeing an animal or a crop and the landscape is unremarkable.
    What arguments are there against this?

    • aracataca

      Cover the South East of England in concrete blocks?

    • John_Dore

      Rubbish, we have an excess of brown field sites. the Green belt does not need to be compromised.

      Builders aren’t building that’s the issue.

  • aracataca

    Not full credit. It is true that Labour did not introduce radical enough changes to housing policy while in government (perhaps in mitigation one might add that mortgages were plentiful and cheap during most of its period of office) but the origins of the crisis can be firmly traced back to the policies of the Thatcher government in its decision to sell off council housing to tenants at a knock down price and forcing councils not to use the money gained to build new social housing. This crisis has neo-liberal/Thatcherite roots. 

    • Serbitar

      But New Labour post-dated the Thatcher and Major administrations and remain in office for thirteen years. New Labour could have stopped council house sales (in fact it did water down the discounts offered to tenants slightly), repealed or reversed any of Thatcher’s legislation and released capital receipts from council house sales as promised to enable councils to begin to replace some of the lost social housing (which it didn’t despite everything its had said previously), or allowed councils to borrow money at  preferential rates to enable them to expand their local housing stock, or do anything else imaginable during three parliamentary terms Labour remained in office. In point of fact Labour worked overtime to sell off council housing to housing associations and social landlords or introduce Arms Length Management Organisations manage council properties deliberately to wrest day to day control over such housing from from local authorities.

      Labour chose not act and as a result we are where we are.

      The one thing I best remember about Labour campaigning pre-1997 was a much repeated pledge to build more council houses. In particular I vividly remember John Prescott banging on about this at every opportunity and in the end what did he personally end up giving us? A competition to determine which architect could design the best house that could be built for £60,000 with the implication that many such houses would later be constructed based on the winning design to give as many people as possible the chance to live in a home they could afford to rent and possibly one day buy; true to form once the competition had concluded and its winner announced not one single property based on the successful design was constructed anywhere. The competition was pointless NewLab diversionary nonsense to make the government look busy and concerned when it was idle and careless. 

      The Labour Party IS to blame for the housing crises.

      And everybody knows it.

      Does anybody believe that Ed Miliband will behave differently?

  • aracataca

    Not entirely true I am afraid. The Labour government did change the law and allow councils to spend capital receipts on building new social housing. It also reduced the discount at which council houses could be sold off by a significant amount. Mortgages were cheap and easy to get until 2007 so the crisis did not at least ‘appear’ so intense.  Rents have only really shot up since the advent of the mortgage famine. However, I am not really defending the record but the origins of the crisis lie in Thatcher’s original policy. 

    • Serbitar

      The release of capital receipts was “phased” and pretty much non-existent as far as new build was concerned. I believe I am correct in saying that only an entirely miserable 3,000 council houses got built during New Labour’s 13 years in office while 1.8 million people languished on waiting lists hoping for social tenancies that they could afford while being forced to live in expensive insecure privately rented accommodation there being no alternative. Even when mortgages were “cheap” they weren’t so “cheap” as to be available to families living on the minimum wage and similar especially in expensive areas. Thus poor families were compelled to rent very costly private accommodation with insecure tenancies (paid for by Housing Benefit)  from which they often were periodically evicted (as the landlord sought to make “better use of their property”) forcing people of very limited means to shoulder the cost of locating and moving their furniture and possessions to another temporary let and put up with the many other associated disruptive spin-offs involved in such a move,  e.g., making their children change school from one in which they were settled to another, mid term, and so on.    

      Abysmal.

      To make matters worse and to add insult to injury we now have NewLab types like Liam Byrne seemingly surprised that the Housing Benefit bill has risen to £20bn a year (as if it was the tenant’s fault and Byrne had never himself been Chief Secretary to the Treasury) and Ed Miliband talking vacuously about rationing what little council housing remains a way that favours “people that do the right thing”, whatever that means, over all others irrespective of need.

      More diversionary tactics and pointless stunts coupled with no commitment to do what we all know is really necessary, i.e., build a lot more social housing, does not inspire confidence in what appears more and more to be nothing more than yet another tired old New Labour reboot. 

      • aracataca

        As I have already said the last Labour government could and should have done more on the housing issue. No question. I am simply stating that the origins of the current housing crisis lie in the housing policies adopted by Thatcher’s government of the 1980s.
        As a Labour party member I can assure you that the need to build more social housing is at the forefront of internal party debate about policy in this area. John Cruddas is heading up the policy review and he has explicitly stated that the expansion of a social housing building programme will be a central plank of the party’s review of policy.

        • Serbitar

          Thatcher was to blame initially but the Labour Party sitting on its hands for thirteen years made matters much worse. After land, labour and material cost inflation has been factored into the equation revitalising social housing will, if it ever happens, which I doubt, be vastly more expensive than it would have been if Labour had kept its word to the electorate and grasped the nettle as far as social housing goes early on during its first term in office rather than renege, kick the can down the road, and ignore the worsening plight of millions of stalwart Labour voters.

          New Labour’s inaction in respect to social housing was one of its greatest failures and in my honest opinion its greatest betrayal which has done the Party no end of harm.

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