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The ongoing housing crisis
Former Member
Posts: 1,876,323 The Mix Honorary Guru
One thing that I get really emotional about is housing. I get upset that some people live in mansions and some people have no home, not even a ROOM they can call their own. So that's a little disclaimer there that I might fly off the handle (though, I will endevour not to 
). This is my little pet peeve.
Some background
So, recently, the The Chartered Institute of Housing published its Third Edition Housing Report which highlighted some ongoing issues:
My understanding
Firstly looking at housebuilding, most of the new housing stock in this country is owned by very large, very profitable and very wealthy companies. They are the 'house-builders'. In a free market, if they failed to build enough houses, then smaller enterprise would take over. However in the UK, only around 5% of homes are built by smaller / independent enterprise (compared to a ballpark 50% in France). I don't understand the full reason why, except perhaps for minimum capital requirements (e.g. you need at least a spare £100k to consider building even one house - something most people can't claim!) but I believe it has contributed towards a 'cartel' mentality, where producing more homes actually costs these companies money in lost revenue.
Secondly considering house prices, they are overinflated. By around 30% from what I have read and I can believe that. Now the housebuilders are saying that the problem is actually a lack of demand, and they won't build more until mortgage lenders give out 100% / 105% mortgages to people who will struggle to pay back. The banks know that they have a bomb on their hands with tens of thousands who would instantly fall into negative equity if the market actually slumped by 30%, so they have to be careful to on the one hand be prudent not to take on more risk, but on the other - not contribute to a 'market correction' in which they (and homeowners) would be the main losers.
Again, the problem is capital interests are being put first - the financial losses accrued by the powerful - vs the 'economic benefit' of all or efficient markets. This is the second market failure.
This is my main problem though, in that its not people who at 35 'own property' for a living that are being put up against it, but instead the most vulnerable - people who need a roof over their heads or who are facing evictions as landlords seek to push up rent. We have a market that isn't offering an alternative, and a lack of legislation to deal with landlords. It's basically a perfect storm of shitness, which is leading to what I call a a crisis.
Solutions
Well, what we would do is increase pressure on landlords. I believe that there may be some benefit on a first home (perhaps even building it yourself), but an increased tax burden or mortgage responsibility on second/third/fourth properties. In an era of scarcity, surely homes must be one of the first dominoes where we have to tell people - you can keep your multiple properties, but it's going to cost you. My hope is that through the redistributive affect, it will become profitable for companies to build homes for first time buyers and become less profitable for people to gain massive property portfolios. In my mind it is no different to someone hoarding all the supplies of medicine because they can afford it and making exhorbitant profit on it.
Another idea is that we borrow money (:shocking:) and with that we, as a country, build more houses which we give to local councils. With some intelligent planning we could really go a long way towards providing not just for the needs of today, but the needs of tomorrow as well.
I will say that I don't believe the government or the population is entitled to luxuries such as Trident until we meet our basic obligation to each other that everyone has a safe place to live and somewhere to call their home. It is not, as Cameron would like to phrase it 'an unrealistic dream that people should work hard for', but in my mind its a basic right of life to have a corner of this planet that is yours, even if you are renting and don't own it out right - you deserve and should have that security.
I welcome other people's thoughts on the matter
). This is my little pet peeve.Some background
So, recently, the The Chartered Institute of Housing published its Third Edition Housing Report which highlighted some ongoing issues:
- Housing supply – Britain isn’t building
- Planning – More reform generating more uncertainty
- Overcrowding – Pressure continues to build
- Homelessness – Vulnerable at higher risk
- Evictions, repossessions and arrears – Preventative approach yields results
- Help with housing costs – More claimants claiming more
- Empty homes – Solid progress
- Mobility – Still waiting to move
- Affordability of the private rented sector – Rents rising
- Home ownership – Dreams unrealised
My understanding
Firstly looking at housebuilding, most of the new housing stock in this country is owned by very large, very profitable and very wealthy companies. They are the 'house-builders'. In a free market, if they failed to build enough houses, then smaller enterprise would take over. However in the UK, only around 5% of homes are built by smaller / independent enterprise (compared to a ballpark 50% in France). I don't understand the full reason why, except perhaps for minimum capital requirements (e.g. you need at least a spare £100k to consider building even one house - something most people can't claim!) but I believe it has contributed towards a 'cartel' mentality, where producing more homes actually costs these companies money in lost revenue.
Secondly considering house prices, they are overinflated. By around 30% from what I have read and I can believe that. Now the housebuilders are saying that the problem is actually a lack of demand, and they won't build more until mortgage lenders give out 100% / 105% mortgages to people who will struggle to pay back. The banks know that they have a bomb on their hands with tens of thousands who would instantly fall into negative equity if the market actually slumped by 30%, so they have to be careful to on the one hand be prudent not to take on more risk, but on the other - not contribute to a 'market correction' in which they (and homeowners) would be the main losers.
Again, the problem is capital interests are being put first - the financial losses accrued by the powerful - vs the 'economic benefit' of all or efficient markets. This is the second market failure.
This is my main problem though, in that its not people who at 35 'own property' for a living that are being put up against it, but instead the most vulnerable - people who need a roof over their heads or who are facing evictions as landlords seek to push up rent. We have a market that isn't offering an alternative, and a lack of legislation to deal with landlords. It's basically a perfect storm of shitness, which is leading to what I call a a crisis.
Solutions
Well, what we would do is increase pressure on landlords. I believe that there may be some benefit on a first home (perhaps even building it yourself), but an increased tax burden or mortgage responsibility on second/third/fourth properties. In an era of scarcity, surely homes must be one of the first dominoes where we have to tell people - you can keep your multiple properties, but it's going to cost you. My hope is that through the redistributive affect, it will become profitable for companies to build homes for first time buyers and become less profitable for people to gain massive property portfolios. In my mind it is no different to someone hoarding all the supplies of medicine because they can afford it and making exhorbitant profit on it.
Another idea is that we borrow money (:shocking:) and with that we, as a country, build more houses which we give to local councils. With some intelligent planning we could really go a long way towards providing not just for the needs of today, but the needs of tomorrow as well.
I will say that I don't believe the government or the population is entitled to luxuries such as Trident until we meet our basic obligation to each other that everyone has a safe place to live and somewhere to call their home. It is not, as Cameron would like to phrase it 'an unrealistic dream that people should work hard for', but in my mind its a basic right of life to have a corner of this planet that is yours, even if you are renting and don't own it out right - you deserve and should have that security.
I welcome other people's thoughts on the matter
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Comments
I'm not convinced the government should be taking on more debt to build more houses to allow people living on benefits to live somewhere that's got high pricing driven by the Market when there are empty properties 10 miles away. Someone will mutter about access to jobs, but the answer to that is a decent transport system.
We shouldn't buy into the myth that the majority of the people needing housing are simply unwilling to lower their standards - for jobs for example, a recent study found that although job applicants were often willing to travel for up to an hour to get to work, employers weren't willing to hire them!
I am sure London will have an interesting and unique picture in this regard, but it doesn't follow suite for the rest of the country. Where I am, I can't find any places within commuting distance that I could get a legit mortgage on. Admittedly I can probably get a mortgage regardless thanks to some family ties but this is not a situation most are in.
The problem isn't exclusive areas, it's a problem of acceptable, affordable, decent housing. The free market is failing to provide because it's controlled (in my opinion) by a cartel. Likely a cartel that has significant influence on the incumbent government (/tin foil hat), and also because its tied up with mortgage lenders who know that devaluing property will ruin their own companies.
But I can't see why if the system is broken we should allow it to continue to be broken because fixing it would be too painful. Government spending is not ideal but it is one way to force a market correction.
Building more houses basically puts 'liquidity' into the housing market and without breaking anyone, just inflates everything and makes everyones home a little less valuable. Whilst creating economic activity that should be engaged in anyway, but wont be because of house-building cartels.
Just some guys blog but he touches on what I've said:
Except I think when people start throwing around these stupid figures saying that houses are over valued, that entirely depends on your point of view.
I think houses are worth a hell of a lot less than people think they are, and I mean A LOT, and always have been for the past 20/30 years. What I think gets overlooked is that when stats talk about how over valued houses are, they say "value of house" and actually mean how much someone is willing to pay to get it. Subtle but significant enough of a difference.
Re the cartel theory, it's not really a cartel as there's no active collusion. The outcome is kind of like that in the Tacit Collusion theory which, unlike a cartel, is stable in the long run iirc.
When I say overpriced I mean according to APT expected return of a security (also accounting for other factors) as generally you can only reasonably expect a %age of an average persons income on a residential property. Property prices have increased, incomes haven't, thus your expected return must fall and the industry estimate is that this overpricing is at around 30%. The exceptions are if you can squeeze more people into the same residence, or if you can get people to pay a higher proportion of their incomes. There are limits though.
The problem is a rational actor may understand its overpriced, but still understand that sentiment and people building castles in the sky could further drive prices up and so speculate and push prices up. This inevitably trickles down to rents as some can't afford to buy (increase demand for rent) and landlords are up against it having secured barely affordable mortgages against their first homes whilst their salaries might have stagnated. It is pretty much the definition of a bubble, but it can only pop when people start to lose a lot of money - when banks start repossessing landlords (but as previously said this is unlikely to happen as banks have an interest in maintaining the status quo).
I don't agree on a rent level as such, I think it encourages too much cost cutting if the only way of making a buck is by spending less than everyone else. I do agree there should be increase caps though, and these have been incorporated in other countries and generally worked well. If incomes in the area go up on average by 5% that year, rents are fixed at a max increase of 5%. It stops opportunist landlords turfing people out for example when the Olympics hits.
That makes more sense, I actually quite like that as a satisfactory explanation for, what I perceive to be, a large market failure. There are actually huge swathes of land owned by housebuilding companies already, with planning permission granted, everything in place - but they are set to be put off until such time as they feel they can make a good return on it. With it being close to costless (if you account for appreciation) to just hold onto land, thats the smart choice, despite the gross housing shortage.
I have no problem with renting, it's great. But lets line up all the landlords by nice vs naughty. It turns out, on average, the naughty ones might make one or two percent better margin than the nice ones.
Problem is as the market is squeezed (which it is), the nice ones have a choice to go out of business or to act like the naughty ones, and the naughty ones clean up the market. In essence we create a situation where it is beneficial to act like a shit. The natural reaction to this would be legislation and regulation, but because historically the UK has been a house-owning culture, leasing and renting laws have never been a high priority or having much votes in them.
Compare it to many other countries on the continent where your landlord would be criminally culpable for leaving you in an unfit home for habitation, >50% of the people I have known on DSS of some sort have had flats with dodgy heating, water or electric. And that's ok. Because in the UK we believe the free market allows for this. I am of the belief the free market fails in these situations because the demand is near enough inelastic - having a roof over your head is a basic necessity to life and as such, can't be left to an unregulated free market, because, at the short end of curve they utterly fail. I mean that was the whole point behind social housing, but we've sold all that now and the government won't commit / fund more. So that's that.
The original social housing in this country was philanthropic, but the state took over - and did well for a bit, but then ideology changed, and state housing became sink housing.
How do you create a sense of responsibility to tenants in this age of profit and greed? And given this same greed leads tenants to think it's OK to rip off "soft" landlords, is it any surprise the good ones give in?
I meant relatively speaking compared to our neighbours in the post war period
I would disagree, many other countries are quite far ahead of us on this regardless of any violent revolutions. I would argue its an ideological thing as we like to stick close to the anglo-american 'the free market rules' model.
Indeed, the vision of state housing originally was to replicate the British or Welsh village - where the Doctor, Policeman and Laborer might all have houses on the same street. As you say though, times change...
Well I think it shouldn't be a sense of responsibility - it should be a legal obligation. Landlords who get stiffed by their tenants have to acknowledge that, as a business venture, there are risks involved. In general it is a very profitable business venture because demand is so inelastic. It's like saying, why should pharmacists have to abide by fair rules for all when some addicts are going to be shits and harass / try to steal from them? That's part of the trade unfortunately.
As it happens I have family who do deal a little in property, however they generally don't have complaints because as I pointed to earlier they make their money from adding value: add value, and you're able to command higher rental premiums. The problem in my eyes with landlords are the ones who are already at the bottom, know the statutory minimum they will get via housing benefit, and so to increase their profitability on homes they are speculating will increase in value and make them millions, they have to stop servicing the property.
It's not a unique or rare story, just in general few people give two shits since those tenants are often your 'undesirables'.
A cynic might suggest it's about building rural second home G-raffe
Instead of legislation the government could just force a devaluation by building its own housing stock. But that's not the tory way. Instead they are trying to encourage banks to give bigger mortgages to people who will struggle to pay them. Makes sense.
The problem is, the average income in the area is £30,000, so the historic '3.5x link' indicates house values should be around £90k-£110k. That, in a free market, would be the natural level, where people would build lots of houses (reducing the marginal cost) until price falls to the point where its just not worth the time - even an independent building their own house wouldn't save any money over buying and spending those hours working an office job.
But the problem is capital. It's really expensive building houses, and the money either has to come from family, or a bank, or some other place, to build it in the first place. This limits the amount of people who can build to the people who can afford it, who are less driven to cut margins fine and would rather do less, and make more money.
An interesting link: http://www.marketoracle.co.uk/Article6250.html
But house building isn't something for the everyday person, it takes a shit ton of time, effort, planning and skill. You need to know what you're doing and if you've got a job you're not likely to want to build your own house but just buy one ready and made.
I know personally both my parents (separated), if asked could find £100,000 tomorrow to build a new house. Through remortgaging their properties (I don't have a wealthy family, my mum brought my sister and I, up on £16,000 a year, until she got a teaching job 8 years ago and my dad used to work in an icecream factor on min wage till he became an accountant 3 years ago)
So i think the capital is easily there, there's just no incentive to risk that money...
Talking from a personal point of view, my dad is a Landlord (In Plymouth) and it's mortgage prices, ground rent, council tax etc that costs so much... Not the landlord being horrible and holding high prices, they've no choice.
-On a quick side note i think G Raffe and some other people had ago about the laws of renting and saying there should be more legislation and laws to control it.
Wrong. This is such a nanny state, there shouldn't be more laws, there should be more education. No one is forcing you to pay high prices, or go to a certain landlord. If the price is too high for you, then live somewhere cheaper, it's simple. When i got offered my place, i grabbed it with both hands, irrelevant to the fact is was about 5 miles from where i worked (I have no transport, apart from my skateboard).
People need to learn to handle thing themselves, rather that needing courts of police or laws. People seem to forget that "rent" means you don't own, therefore someone else does, and it still and always someones else property. So if they want you gone, so be it, if they want you to pay twice as much or to leave, then leave etc. I don't think the gov should be able to control something you own. It's your personal choice if you chose to live in a bad landlords property.
I've been asked by a landlord, to have less than a week to move all my stuff out of my flat and somewhere else. I know i should have got a month, or two. And seeked help from the council. But do you know what i did? I walked into town, had a look round. Made some phone calls, got my deposit back of current landlord and moved into somewhere else. Yes it was hassle, but it was do, quick easy and without too much pain.
Housing Benefit gives me £69.50 a week (£300 pcm), and for a 1 bedroom flat in Mannamead, it costs my dad £384 in mortgage costs... Housing benefit doesn't add up to meet the price. I'm lucky because i only have to pay the cost of the mortgage back to my dad, but if it was anyone else they'd probably have to pay another £50 to £100 on top of that a month easily.
And where can you get for £300 a month, apart from shared housing... which i thinks okay if you want to do that. But you shouldn't be forced too. I'm only 18, but i still feel as if i were put into a house with 5+ other people, sharing kitchen/bathroom/frontroom, i'd go fucking mental after a week. Although to be fair if i had no choice, i would stay in one - but by no means would it be a perm solution.
Once i get settled in a Job, i plan on taking the mortgage off my father for the flat i live in. Only because it's completely ridiculous to rent, why pay out £500 a month on a property (for example a 2 bed house), when you could simple pay the same (or a little more), into a mortgage - and then in essence that money is still your. After 20 years, you'll have a house that's fully paid for and worth £180,000 not bad. (I know it's really not as simple as that, but i'm looking at it in a really simplistic way, because inessence that's what happens.)
Or after 20 years of renting, you're still renting and you've no equity.
The problem lies with the banks, but they can't lend more money out that people can't pay.
Unfortunately whilst I would love to see the government having lesser involvement in peoples lives, it would work fine if the world did work as it should (ie people being nice to each other), except it doesnt and I doubt it ever well. Ying and Yang and all that jazz, there will always be nice people in the world, and also nasty people ready to exploit them. Call me pessimistic, but its what I think.
Saw this on guardian website today, thought it was at least a little bit interesting.
I found it shocking how many terraced houses are being knocked down around the country. he was showing how you can relatively cheaply and easily bring old houses up to modern living standards instead of just knocking them down for new ones.
good video here http://www.youtube.com/watch?v=e82xiYVHLzQ
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My prediction of 30% fall in real terms may be accurate. Hopefully not too many renters get fleeced.