Drastic action needs to be taken to shrink the private rented sector, encourage home ownership, and support renters, a new report from a leading social charity has urged this week. In ‘Making a house a home: Why policy must focus on the ownership and distribution of housing’, York-based charity Joseph Rowntree Foundation (JRF) has outlined key problems contributing to the housing crisis, and solutions to reverse it.
“The housing market is not working”
The underlying context of the housing market’s failure is the transfer of homes directly from social housing to the private rental sector. The report highlights that, as of 2021, 40% of homes sold through the Right to Buy scheme are now owned by private landlords, representing 16% of the total private rented sector.
Further developments, like the removal of rent controls in the 1980 Housing Act, have increased the profitability of private renting, and the financial crash made all forms of investment outside of property comparatively less attractive, driving credit into the sector. This simultaneously made it more expensive for first-time buyers to get onto the housing ladder, while sharply increasing the cost of renting.
The result is a significant increase of the cost of a house, from 4.9 times the median salary in 2002 to 8.96 times the median salary in 2021. In addition, the financial crash has significantly impacted the willingness of banks to cover the mortgages of first-time buyers. Those getting onto the property ladder are thus forced to provide a higher percentage of the home’s value (which is also drastically increasing) to get a mortgage.
The result is a stark intergenerational gap. While the proportion of adults 18–34 owning their own home has halved, the number of households owning multiple properties, who are disproportionately male, older, and white, has doubled.
Decades of policy failure
The report also points to decades of policy failure in fuelling this crisis. Governments have repeatedly focused on growing the size of the private rented sector, which has represented three quarters of net additions to housing stock from 2000 to 2020.
This is not being helped by unambitious housebuilding more generally, and the aforementioned transfer of housing stock from social housing to private renting. The report points the finger squarely at Right to Buy. Not only has the scheme sharply reduced the stock of social housing, but it has centralised the income from this, which was primarily funnelled into the Treasury rather than into building more housing.
Solutions to the housing crisis
As the report points out, this is not a simple crisis, and as such it needs several solutions.
First, the review of the mortgage market already proposed by the prime minister also needs to also include an investigation of how to widen access to borrowing for people on low and middle incomes. This review, it is stressed, should emphasise helping first-time buyers onto the market, rather than increasing the credit already in the housing market, which will only increase house prices.
One possible solution could be a state-backed mortgage insurance scheme, to support higher loan-to-value lending.
Another suggestion the report makes is to reform property gains tax, bringing it in line with taxation from earnings. This will make property a less-enticing investment for landlords, and in the process make it easier for first-time buyers to get into the market.
Rather than removing all avenues for investment, however, more needs to be done to provide alternative opportunities for would-be landlords to invest. One idea the report puts forward is to provide more socially productive investment models, which could support retrofitting homes, or financing social or affordable housing.
What’s more, an active effort should be made to transition housing stock from the private rental sector to homeowners and social housing. This could be done, the report suggests, by a Right to Buy for private renters, which could offer a similar discount which council tenants currently enjoy, for first-time buyers to purchase their home from their landlords.
Similarly, social housing stock, could be hugely increased by supporting local authorities, housing associations, or co-operatives, to buy private homes. This could provide an opportunity to retrofit homes, increasing their value and making better for their residents and the environment.
Support for renters needed
Finally, more support needs to be provided to renters. Supporting rent-to-buy schemes, where renters’ payments go towards equity, could be one solution. Similarly, part-rent party-buy schemes, where a household buys a share of a home and rents the rest from a social landlord, could ease the shift into ownership. The report also suggests reforming Right to Buy to reallocate all proceeds from house sales back to local councils, to enable them to build new homes and grow the stock of social housing.
One issue that the report acknowledges, is that rapidly decreasing the size of the private rented sector risks knock-on effects for those forced to remain as tenants. Transitioning to a smaller, higher-quality private rental sector will thus be necessary. This should involve regulation to compensate tenants where landlords repossess their home, and improving the generosity of the local housing allowance (LHA), a housing benefit which was cut substantially in 2012.
Plenty of opportunities for a sector in transition
The salience of the housing crisis is growing day by day, and has even become one of the issues at the heart of the ongoing Conservative leadership election.
While many will rightly focus on the need to increase the housing supply, this also needs to be coupled with efforts to undo some of the damage done to the housing sector over 40 years of deregulation and irresponsible financing.
The problems identified in JRF’s report are substantial, but the research team behind the report has provided a wide variety of creative and wide-ranging solutions. Only time will tell to see if the candidates currently vying to be our next prime minister, or the opposition politicians seeking a more substantial change in government, will adopt them.