This is an undoubtedly important moment in the future trajectory of the UK housing market for all manner of reasons, not least because of the new Prime Minister we have, the new policies she may follow, and how this all plays out with regards to what many believe will be a 12-18 month+ recession.
Ordinarily, you might simply review the potential for market change within a purely owner-occupier space, but as we know, the whole market is inextricably linked and there will be implications right across the board, particularly for the private rental sector (PRS), in terms of what the government chooses to prioritise.
It might not seem like this to those who have been trying to get on the housing ladder in recent times, but governments over the last decade or so have undoubtedly prioritised the needs of first-time buyers over other areas of the housing market. Indeed, you might argue, that the government has prioritised first-timers at the expense of other areas, perhaps most notably, buy-to-let landlords.
That was a specific choice made based on the argument that making it harder to be a landlord would free up the property they would ordinarily buy/own, for purchase by first-time buyers.
Has that actually worked? It seems very doubtful because what this failed to understand is the properties landlords own and rent out, are not necessarily the ones first-time buyers want, and that in hitting landlords through taxation and the like, you are not impacting the biggest obstacle first-timers have to get over, namely saving for a deposit in a rising house price environment.
Coupled of course with other obstacles which are not landlord-related at all, such as stricter mortgage affordability levels, lower wage/income inflation, the supply of new-build homes which tend to be favoured increasingly by first-time buyers over ‘second-hand’ property etc.
However, the policy has ‘worked’ but not in a good way. The supply of PRS property has dropped but, as a result, rents have increased because the number of tenants has grown. In a very true way, policies that have impacted the supply of PRS homes directly affect wannabe first-time buyers, because while they wait to buy, they need places to live, which tend to be in the PRS, where they are having to pay a larger amount of their take home pay in rent, which means they can’t save as much as they might wish to in order to meet the deposit requirements of buying a new home.
You can see how this is all inter-connected, and what a number of governments have failed to understand is that if you pull a lever in one part of the housing market, you will have a direct impact in another. government policies in the landlord space have created a distorted market elsewhere.
The question now of course is whether you can see the connection, and you are willing to do something which – on the face of it – seems both counter-intuitive and politically unpopular but may actually provide a benefit to both potential first-time buyers and landlords/tenants.
Are you willing to row back a little on the policies designed to hit landlords, which might actually mean they don’t leave the market and they might also purchase more and new landlords might enter, which would increase the supply of property to tenants and would help stabilise rents? Can you make this case to ‘Generation Rent’ to say that a greater supply of PRS property is going to help you?
As I say, this is a very difficult case to make from a political point of view. People looking to buy might think you need to hit landlords even harder, to stop them from adding to portfolios at all. They might think, for example, that the recent Scottish government policy to freeze rents for at least a seven-month period, is the way to go, even if (as seems likely) this merely takes more supply out of the PRS, which – when the freeze ends – will simply see rents rising even higher and faster.
If the UK’s housing market wasn’t so reliant on the PRS to house those who can’t get on the property ladder, then a continuation of the policies that have been followed, might seem like a good idea. But you can’t simply start again here, you have to look at the market in the round and recognise how they link together.
If you’re able to do that, you should be able to see the sense, and the case, for improving PRS supply, particularly now. You’ll be able to recognise that demand far outstrips supply, and you’re not going to change this by simply introducing more schemes that incentivise the small number who can make their move from renting to buying.
Of course, this is an incredibly complex issue and not an easy one to work through. We are where we are because policies have been adopted which tended to do the opposite of what they were supposed to. Recognising this is the first step to change, and I hope this ‘new’ government will be able to see the big picture and understand that buying and renting are two sides of the same coin.
Patrick Bamford is head of international business development at Qualis Credit Risk, part of AmTrust International