It’s official: Britain will soon be a nation of renters. Last week, the Institute for Fiscal Studies published new research showing that the proportion of young people who own their own home has more than halved in the last two decades – from 65 per cent in 1995 to 27 per cent today. In London, it hovers at just 20.
Pundits and politicians reacted to the news with a mixture of outrage and anxiety. Labour’s shadow housing secretary John Healey called it a “wake-up” call. The IFS’s own Andrew Hood warned of a “collapse” in Britain’s homeownership. And Housing Minister Dominic Raab swore “to go further and faster” to get Britain back on track. “Through schemes like Help to Buy, we’re helping more people onto the housing ladder and last year saw the highest number of first-time buyers in the UK since 2006,” he said.
But we should not mourn the loss of British homeownership – let alone vow to revive it. Britain’s obsession with homeownership has been toxic for the economy, driving up inequality while driving down productivity. And the obsession with homeownership has been no less toxic for British politics, creating a conspiracy of silence at Westminster to kill any policy that might alienate the marginal homeowning voter.
Instead, we should celebrate Britain’s transition to the rental sector, seizing the opportunity to introduce new reforms that ensure that tenancies are safe, secure, and affordable.
The situation today is, of course, dire. Millennials spend three times as much on their housing as their grandparents, but they get far less in return. High levels of rent drain their monthly income while funding their grandparents’ retirement. It is a direct transfer of wealth from the young to the old.
Expanding homeownership is an appealing – and familiar – solution to this problem. It is also a highly popular solution: the vast majority of renters, when surveyed, say that they would prefer to own a home. Who wouldn’t?
But Raab — and the Conservative Party, more broadly — are prescribing the illness. The drive to homeownership is what got us into this mess, encouraging households to take on mountains of mortgage debt and driving up prices in the process. It is a vicious cycle: house prices go up, making property look like a wise financial investment, so demand begins to rise, and prices go up again. Policies like Help to Buy only stoke the flames of housing demand further.
Fuelling the obsession with homeownership is the raw deal of the private rental sector. Not only are rents high and rising. The PRS is also littered with fees from estate agents and landlords. Meanwhile, tenants live in constant fear of their eviction or removal – which, under Section 21 of the 1988 Housing Act, landlords can initiate even if the tenant has not violated any code or contract.
It doesn’t have to be this way. Most European countries have much stronger protections for their tenants, with longer minimum tenancies and prohibitions against eviction. Many of them also have laws that limit rent inflation to guarantee affordability to their tenants. Renting property can endow tenants with a sense of freedom and flexibility – rather than feeling shackled to a single home and a 30-year mortgage on the only affordable edge of town.
So how do we get to this renters’ heaven?
The fastest route is through the council. Britain’s social tenants enjoy more secure tenancies at more affordable rates. They also report much higher levels of satisfaction with their housing. A large-scale council housing construction scheme could help house Britain’s young and broke.
But reforms are needed to make the PRS more hospitable to low-income tenants. This includes extending minimum tenancies to three years to give renters more stability in their tenure. It would also include regulations for rental inflation, as we have seen already in the German case, whereby rent rises are capped at inflation. And it would eliminate Section 21 completely, giving some peace of mind to renters who fear each day that eviction is around the corner.
The rapid decline in homeownership is both a curse and a blessing. To make the most of it, we should not look back nostalgically to 1995, when the seeds of this crisis were first sown. We should instead move forward, toward the future of affordable, flexible rent. A property-renting dream.
David Adler is a research associate at the campaign group Generation Rent.