The report looks at the decline of home ownership between 2002 and 2014, and controversially places more of the blame on restrictions on mortgages post-crash than the increase in house prices. The authors point out that rising house prices did cause the fall in first time buyers in the mid-noughties, but after the crash, when 90% and 95% mortgages were withdrawn, fewer people could benefit from the slump in house prices so home ownership continued to drop.
As high loan-to-value mortgages have returned in the past three years, first time buyer numbers have risen, but we’ve seen house prices surge again, so home ownership levels will remain subdued.
A crucial third factor behind the decline in home ownership is the decline in incomes of the 28-40 age group relative to older people. The financial crisis and the ensuing government austerity programme have hit the youngest harder than the over-40s and reduced their spending power in the housing market.
Why is this a problem? It implies that would-be landlords (typically over 40) are in a stronger bargaining position than first-time buyers in the housing market, so can outbid them for properties. This is a new articulation of the problem and very useful in helping us understand the role of landlords in the housing crisis.
Despite these extra factors, it all comes back to house prices. If credit is deregulated then house prices go up. If investors have greater relative spending power than would-be owner occupiers then house prices go up.
While the government has unhelpfully stoked house price inflation through Help to Buy, it has, to its credit, made moves to address declining relative incomes, bringing in a 3% stamp duty surcharge on additional properties earlier this year and phased reduction of mortgage interest relief for landlords starting next April.
This should shift the relative purchasing power of first-time buyers, and already we’re seeing an increase in first-time buyer numbers. There were 91,600 in the last quarter according to yesterday’s CML figures, and a quarterly average of around 75,000 in the two years before the original tax announcement in July 2015. There has been a corresponding fall in buy-to-let purchases – HMRC records 56,100 transactions liable for the surcharge, while we estimate that 2013-15 saw an average quarterly increase of 78,000 private rented homes.
The Review recognises that many renters won’t enter home ownership as things stand, and that there is an urgent need for homes for people on low incomes. The government could boost supply of affordable housing by earmarking the receipts of the landlord surcharge for this purpose.
Beyond its original modelling, the Review makes a number of sensible recommendations, including:
- no home ownership target (which is good if it meant the government started treating private renting as a genuine alternative)
- a taper of the Help to Buy scheme to target only first-time buyers (though we’d like it scrapped entirely)
- providing “a healthy and stable renting environment” (here’s one option the government should consider)
- applying the discount on Starter Homes in perpetuity (one of our suggestions)
- the need for stable house price inflation (though they would prefer it to match wage growth, which doesn’t really allow people to catch up)
Finally, their big policy proposal is for a Housing Commission, much like the recently established one for Infrastructure, which would foster bipartisan solutions to the housing crisis that stretch beyond General Elections. It’s not flashy, and is in keeping with the grown-up approach the Review has taken.
The Redfern Review is commendable, but the scale of the housing crisis demands more bold ideas if we want to reduce rents to an affordable level, on a timescale that helps those who are struggling now.