Britain’s nightmare with housing stems from the extremely high prices of buying your own home.
The average property costs five times the average person’s annual earnings; almost a record high. Prices are not slowing down either. December saw property prices sitting at around 10% higher than they were the previous year.
Rents are also increasing sharply, with housing costing about 20% of a typical family’s weekly expenses, up from 16% in 2000.1
The Government is also struggling with the expenses of housing the population, as many simply cannot afford the rising rents, and 1.7 million people are waiting for state-funded housing.1
Young people are suffering the most, as they are unable to get onto the property ladder. Many are still living with their parents, as they attempt to save for the huge deposits expected by the banks.
The proportion of Britons who own their own home has dropped from 70% to 65% since 2000.1 However, many stress that they are still eager to buy.
There are many people, and situations blamed for the housing crisis. Although it seems that several factors are contributing to the problems, and the lack of solutions.
The existing population have to compete with foreigners buying into the market. The surge in immigration has lead to a densely populated country, and simply too much demand for new homes.
However, this problem seems centred within London, where wealthy foreigners are driving up house prices in the capital. There is not much proof that the same is happening around the country.
The higher house prices of the last few decades have prompted some to invest in the sector. Buy-to-let landlords are now purchasing property after property, and due to their approval from the banks, they are forcing many young people out of the market.
Nonetheless, buy-to-let landlords could be seen to increase the supply of houses, as often they will buy bigger homes to divide into smaller apartments.
Rural lobby groups, such as the Campaign to Protect Rural England (CPRE), and the National Trust are preventing any building on the green belt. Just 13% of the UK’s land is built on1, meaning that the overcrowded urban areas are simply having to increase prices.
Unfortunately, these groups are effectual, and manage to stop politicians building in rural parts.
Construction firms do not build enough property, and this raises their profits due to the new homes that they sell being increasingly expensive. In an ideal world, new companies would be competing with them to stabilise these profits. However, this does not seem to be happening, leading to unaffordable property.
During the 2008 recession, banks abruptly stopped providing mortgages to young people, and are only just picking up. They began requiring huge deposits and introduced high interest rates to new borrowers. This generation have therefore suffered rejection from the market.
The sudden halt in lending pushed young people off the property ladder. Although, banks were right to be conscious of providing mortgages to those who overspend and could struggle to repay their loan if interest rates rose further.
The Government’s Help to Buy scheme provided a short-term solution to a larger problem. The system has pushed keen young buyers into the market, although it has also stopped the levelling out of property prices that the sector needs.
Tenants in Britain are also suffering from insufficient rights, compared to those renting in the rest of Europe. Contracts in the UK are predominantly short-term, allowing landlords to control the sector. Excessive fees for letting agents can also halt renters from saving.
In Europe, long-term renting is much more commonplace, and this is potentially due to tenants having greater rights. British renters could benefit from having more equal rights to landlords and thus wanting to stay in the sector.
Landlords are overcharging those that simply have to rent. A rent cap by the Government could stop investors taking advantage of the generation that cannot get onto the property ladder. However, limits can prevent landlords from developing more properties, providing less supply
By protecting tenants, Britain would move into a renting-friendly society. This could help mortgage providers stabilise their lending.
The Government’s mortgage plans would indeed increase the demand for property, but would not boost supply. In the future, first time buyers will face even greater mortgages, of which their wages will not match.
The rate of new build construction is about 150,000 per year, the lowest number since the 1920s. However, annual demand for these properties is around 250,000.1
There are many options for building more homes, for example, bigger development budgets, or land value tax, which would raise supply and reduce prices in the market.