The British Obsession with Home Ownership
by Ken Gibb
I was on the radio yesterday morning talking about home ownership and renting. Amidst my pauses, verbal tics and mangled grammar, it was quite an interesting discussion. The BBC had recorded a German commentator based in London who was both a little mystified by the British devotion to owning and also keen to express the indifference of his people to housing tenure (and much lower rate of home ownership).
I think the German position was a little overstated. According to McCrone and Stephens (1) there are at least four reasons for lower rates of home ownership and the incredible flat real house price trajectory in the country over the period since 1970 (see the recent excellent graphic coverage in the Economist – (2)).
First, most of the stock is in flats or apartments and this is more likely to be rental. Second, larger down payments historically have led to older first time buyers. Third, owners often bought larger detached homes, which were high cost, further shrinking opportunities. Fourth, older buyers seem to stay put for much longer periods hence the smaller resale market (in part because they are also more likely to build these detached properties themselves). While things have moved on a bit since they wrote their comparative housing book in the mid-1990s, much of the argument continues to hold. Indeed, while there is a path dependency that helps sustain the UK’s craving to own, similarly, long term rooted factors also can also be found in the desire to normalize housing as a much more balanced and stable system in Germany, backed by long established tax and regulatory policies.
However, it is of course not all sunshine and roses. Urban eastern Germany has faced chronic problems of de-population, over-supply and the policy failure consequences of ill-designed public housing privatization after re-unification. And just because Germany has had this remarkable period of stable prices does not mean that it will continue to do so. Indeed the comparative strength of the economy and urban/regional investment may already be inflating house prices in major German cities.
Nonetheless, it remains a radically different picture from the UK. The German speaker also argued that a strong system of state pensions in his country (and is that right?) meant that there was none of the same impetus for asset-based welfare founded on long-term capital growth of property values. This was an opportunity for me to challenge the premise i.e. that asset-based welfare of this form is somehow a sustainable and/or a comprehensive way to pay for old age, for care or for supporting the higher education or house purchase of children. It is arbitrary and down to the luck of local market historical performance and it is also capricious in terms of when one’s need for funds falls. And don’t forget those who miss out systematically: those who are non-owners, live in the wrong regional housing markets, or who have no housing wealth or indeed are now less likely to be able to afford entry to the sector in the first place.
In the debate of the last few days about the merits or otherwise of rising house prices (note though that they are perhaps still falling in Scotland and in Northern Ireland), the underlying policy goal of increasing home ownership remains for many politicians and for wide swathes of the media untouchable. This is despite the fact that many are persuaded about the logic of a balanced housing system, which is more tenure-blind, that lowers the cost of housing and where speculation, asset price expectations and land markets do not encourage regular periods of volatility. But the political willingness to move in that direction remains absent.
Policies to levy deep cuts on local government and to reduce the welfare benefits of the poorest in society are politically popular and play to core constituencies. Wasteful and counter-productive policies like Help to Buy are promoted, presumably, because the short term electoral gain is more important than the long term damage of further market volatility. Doing the right thing for the housing system as a whole seems to be beyond the planning horizons of our politicians. Perhaps the real challenge for the housing commentariat is to provide arguments and evidence that speak to the need to take a long term truly strategic approach to housing?
Imagine a world with stable long term house prices, where expectations of future house price inflation remained equally static and where government policy ad that of the Bank of England prioritised the maintenance of this housing market goal? The independence and consumption motivations remain for home ownership but not the wasteful, displacing and self-defeating aspects of asset growth speculation. Rental housing would, with sensible regulatory parameters, be seen to be less of a second-class activity but actually also similarly about housing consumption and choice. Neither should this damage the continuing need for new housing supply to meet demand, need and to replace redundant stock (allied to the supply-side reforms required to make housing supply more elastic and which would benefit from the certainty of operating in a less volatile environment). Most important normalizing a more stable housing system would make housing a little bit boring and less liable to interact so dangerously with mortgage markets, the macro-economy and less able to be a conduit that reduces the supply of funds available for productive investment and genuinely systematic opportunities for pension investment and care insurance products.
Before we get too dewy-eyed considering this sunlit imaginary prospect, it is also worth pointing out that making significant shifts in this direction to at least over time reduce the oscillations in real house prices and at the same time creatively and positively reform rental markets would be a considerable improvement on the current parlous situation. We may not end up with Germany’s desirable balanced market but a commitment to wider market stability would be a purposeful and even game-changing step.
It is a different post to this one that will look in more detail at the sorts of policy clusters that might contribute to this goal. The point here is simply to consider the aims of that overarching approach to the housing market and the prize that could be attained.
Ultimately, obsessing about home ownership is irrelevant for many people’s housing situation trapped outside the sector. Sustaining a home and a mortgage is also hugely burdensome for many others. And it is, arguably, both a drag on the economy and the source of some truly misconceived social policy ideas about asset-based welfare. It is never too late to start down the right policy road.
(1) McCrone, G and Stephens, M (1995) Housing Policy in Britain and Europe. UCL Press: London.