Time will tell whether Sir Michael Lyons’s long-awaited housing review will deliver the dramatic increase in house-building the country needs over the coming decades. But for now at least it breaks important new ground in the policy debate about how the homes we do have are sold, and to whom.
Among the most eye-catching of the proposals he presents to Labour today is for a percentage of new homes to be reserved for a certain time for purchase by first-time buyers. There should also be powers to restrict their sale into the buy-to-let market, he says.
This is different from previous attempts to help first-time buyers in that it is not only designed to give them a head-start but, importantly, places a restraining arm across eager landlord-investors.
This could mark a decisive turning point in housing policy, which from the 1980s until now has been geared towards boosting the private rented sector and giving would-be investors every opportunity to pile in with their cash. The deregulation of the housing market, the exponential growth of buy-to-let mortgages and rapid house price inflation – all engineered by ministers in one way or another – have all encouraged the colonisation of the market by a rent-seeking generation of small landlords.
The initial idea was that the private sector would pick up the slack in the supply of new homes after councils were effectively prevented from building any more. But this never happened and instead the housing shortage set in and first-time buyers were shut out.
It is a common complaint that rising house prices are condemning more and more younger people to renting, where the costs are so high that they have never enough money to save for a deposit.
Obviously, obviously, there are not enough homes to keep up with demand. But what we tend to consider less is who might be buying up these homes, at their inflated prices, instead: the answer is private landlords.
The story of the housing market over the past decade or more is the decline of owner-occupation and the rise of a new rentier class comprising small investors, who of course already own their own home and have done very well out of the property boom, thank you very much. As a result, these people have the resources to get ahead of first-time buyers every time.
The number of homeowning households barely increased between 2001 and 2011, from 14.9m to 15m, according to the Office for National Statistics. Virtually all of the growth in the housing stock during that time was absorbed by the private rented sector, which grew from 6.7m to 8.3m. Proportionately, owner-occupation fell from 69 per cent to 64 per cent of all homes, while privately-rented accommodation grew from 12 per cent to 18 per cent. Social housing has also been in decline, due to the lack of investment in new homes for the sector, and is now smaller than the private rented sector.
A major part of the drawback with buy-to-let investors, and the reason they have driven up costs rather than funding supply as was once hoped, has been that they tend to buy existing stock rather than funding new developments. The Treasury’s best estimate in 2010 was that just one in 10 buy-to-let loans was taken out on a new-build property. (A subsequent consultation discovered that even that was an optimistic figure.)
So putting some kind of break on buy-to-let investment, and putting first-time buyers ahead in the queue, is vital and Lyons’ proposal is to be welcomed.
However, to limit the application of this approach to new homes is not ambitious enough, as they represent only a small proportion of the homes coming onto the market in most areas. Why not apply this policy to the sale of all homes, new and existing?
And to the extent that we need further landlord investment at all, it should be nudged towards – not away from – new-build homes.
In this regard the Lyons review, while representing a step forward, is not realistic enough about the challenge facing first-time-buyers in the property market and the need to give them greater access to all homes that come onto the market, not just new ones.
And if we are to allow our new landlord class to keep sinking their capital gains into the property market, let them use their stacks of cash to fund the building of new homes.
Daniel Bentley is director of communications at Civitas: Institute for the Study of Civil Society, and co-author of Finding Shelter: Overseas investment in the UK housing market
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