Crisis? What crisis?
Tumbling house prices are sending politicians into a panic. But this could be the perfect opportunity to rethink Britain’s attitude to bricks and mortar. A home should be something we live in, not something we speculate on, says Jon Henley - just like it is in most of the world
Mainly, right now, it’s just a forest of figures: 12% wiped off property prices in a year; new mortgage approvals down by 71%; house sales at a 30-year-low; bank lending to homebuyers down by £12.1bn; one in seven homeowners in negative equity within two years; repossession orders up 24%; 45,000 families set to lose their homes.
We are transfixed by these numbers. They are writ large on our front pages and lead the news bulletins. Property is our great, our overriding national obsession. To an extent that is unique almost in the world - and certainly in Europe - we follow every twitch of the market with fixated fascination. When it’s in trouble, it’s like the very soul of the nation is at stake.
But there is another story behind the impenetrable array of numbers that our so-called property crisis generates every day (and to which the government was proud to add this week: £600m emergency rescue package; 1% stamp duty threshold hiked to £175,000; 340,000 buyers aided; 16,000 reposessions prevented).
It’s a story about how on earth we came to be in this state. How did we get to a point where grotesque nouveau kitsch mansions in The Bishops Avenue, aka Billionaire’s Row in Hampstead, north London, can sell for £40m, small converted mews houses - homes, in other words, for horses - fetch £6m, and 1.6 million people are currently stuck on council waiting lists?
How can it be that Notting Hill, a part of London that 50 years ago was a sewage-sodden, low-rent slum, can now contain a top-floor flat bought 40 years ago for £12,000 and now on the market for £800,000? “It really wasn’t an investment,” protests its owner, Joy, a recently retired primary-school teacher who understandably does not want her surname widely known. “I was just buying a place to live. In a pretty daggy part of London, too.”
How, also, has a motormouth Mancunian former joke writer called Mike Shirley been able to parlay his £6,000 purchase of a two-up, two-down terraced house in 1997 into a buy-to-let portfolio worth £7m? And what, at the other end of the scale, has happened in this country that first-time buyers, to obtain a competitively priced mortgage, need a deposit equivalent to two years’ take-home, while locals in Cornish fishing villages must confront an average house price of roughly 11 times their earnings?
The change has been so massive, so far-reaching, and so rapid that it is easy to forget what things were once like. Less than a century ago, only 10% of Britons owned their own homes. Even 30 years ago, half of us were still renting. Now more than 70% of us are homeowners. And most of that 70% have become an awful lot richer, at least on paper: in October 2007, the average house price in Britain was £218,000, more than three times the 1995 level, four times the 1988 level, and roughly 50 times the 1970 level.
If house prices fall even 20%, most of us will still be very much quids in.
According to the housing charity Shelter, in just three decades, from 1971 to 2002, combined housing wealth in Britain spiralled from £44bn to a barely imaginable £2.5tn - that’s double the level of pension and life-assurance savings put together. So much money have we made from this unprecedented boom that we’ve started buying homes not just for ourselves, but for others, too: hundreds of thousands of us are now landlords, holding a total of 1.1m buy-to-let mortgages and ploughing £126bn into investment property since 1997.
So what has driven our insane, headlong pursuit of property ownership? Objective external factors - an influx of foreign money, huge City bonuses - have played a role, particularly in parts of London. Low interest rates have been critical. But there’s something even more fundamental than that: simply, we no longer see our homes just as places to live. In the past 30 years, our attitude to them has changed, completely. In fact, we no longer even think “home”, we think “property”. We think investment. Capital gain. Sure-fire winner. Gotta do it; get in there; be crazy not to. Right-to-buy, loan-to-value, buy-to-let, remortgage, equity release, rental yield, profit. Lots of it. (Or, just at the moment, not.)
With a little help from successive governments only too happy for us all to feel rich, contented and readily inclined to vote for them, and an array of profit-hungry financial institutions embarked on a wildly irresponsible feeding frenzy, we have succeeded in commoditising what should be a fundamental human right: to have a roof over our heads. And once that happens, logically, every profit-seeker and speculator out there moves in, and - equally importantly - all of us who have bought suddenly have a deeply entrenched interest in ensuring that those prices continue to spiral upwards.
“Essentially, what has happened in this country is that we’ve confused home ownership with the acquisition of wealth,” says Adam Sampson, Shelter’s chief executive. “Those two concepts, which should be distinct, have become irrevocably yoked together. It shows plainly in the reasons people give for wanting to buy: 30 or 40 years ago, you bought a home for security, stability, status, to gain control over your life. Now you do it to acquire wealth. And that has been encouraged as an article of faith across the political spectrum. It really has been the equivalent of the South Sea Bubble, or the Dutch tulip bulb hysteria.”
Our fixation with ownership has changed the way the country looks, in some places quite radically: go to the centres of cities such as Manchester or Leeds today and the skyline is filled with tower after tower of identical two-bedroom “luxury” buy-to-let apartments, 40% of them empty.
Built by developers eager to profit from the vast piles of equity Britain’s homeowners had accumulated, they have been bought largely by amateur investors who, in many cases, didn’t bother to visit the site or even the city beforehand, so convinced were they that they were guaranteed a killing. These were homes for money, not people.
In London, the populations and appearance of districts such as Notting Hill have altered beyond all recognition. Home even 30 years ago largely to art students, Irish labourers and new West Indian immigrants, they are now the natural habitat of the hedge-fund trader happy to pay £4m for a house, then another million to rip out and replace last year’s comprehensive remodelling. Across the country, 2.3m houses that were publicly owned in 1980 are now private homes (and have not been replaced). In the south-west, equity-rich second-home owners have left some villages half shut-up for 80% of the year; some 241,000 Britons now own second homes in England, and more than 250,000 of us have bought a holiday place abroad.
But perhaps even more fundamentally, our ever-ballooning property bubble has changed us. Most of our grandparents’ generation did not even dream of owning their homes. For many of our parents, a secure council-house tenancy was the limit of their property ambition. In Harlow new town, Essex, Les and Irene Coben have lived in the same former council house for 51 years. They moved there from two rooms in Whitechapel, East London, and were, Rene recalls, overjoyed at the prospect of an indoor toilet. “This was a dream house to me,” says Rene. “What more could I want?” (Although even Les, morally opposed to home ownership and loth to saddle himself with a big debt, bowed to the inevitable in the early 1990s and used his retirement money to exercise his right to buy.)
Now the vast majority of us feel we have an inalienable right not only to own our home, but to make money out of it. Renting, on the other hand, unless you’re doing it short-term with a view to saving up for a deposit or are in between moves, is strictly for losers.
Our obsession with ownership has had enormous social consequences. Shelter argues, with good reason, that in today’s Britain whether or not a family owns its own home shapes children’s lives, affecting their educational opportunities, employment options, life choices and with that, the entire nation’s social mobility.
(Except it’s not quite enough to be born into a home-owning family. Better be born into a family that owns a home in a well-off area, where house values have increased far more than those in less fortunate neighbourhoods. And that’s a very recent phenomenon: for the price of an average house in Kensington, the country’s wealthiest housing area, 10 years ago, you could have bought two houses in Leven, Fife, the country’s poorest. Today, you could buy 24.)
Being born into a home-owning family in early 21st-century Britain is not so very different from being born into the aristocracy of old. Meanwhile, in addition to the 149,900 families officially recognised as newly homeless in England, Scotland and Wales in 2007, up to 400,000 mainly single people are classified as the “hidden homeless” - those who satisfy the legal definition of homelessness, but have not been provided with long-term accommodation.
Our homes now are our pensions, our guarantees of future wealth and happiness, our ever-generous flexible friends. “Take a bit of equity out” or “Stick it on the mortgage” have become the keys to unlocking a seemingly limitless source of cash: why not use all that dosh locked up in bricks and mortar to pay for a nice new kitchen or loft extension, offer a private education to our children, pay for better holidays or a new car, to help - in time - our offspring onto the property ladder themselves?
That is why banks and building societies offered 110% mortgages to borrowers without even demanding proper proof of earnings. That’s why some of us borrowed up to seven times our salaries. That’s why developers persuaded the nation it needed tens of thousands of luxury two-bed city-centre apartments, and estate agents convinced us tiny flats in dodgy parts of London could be worth £300,000 (and they were worth that, actually, because that’s what some people were happy to pay for them). And that’s why we’ve seen the huge popularity of a whole raft of spin-off products: the property TV show (even I’ve just made one), the home-improvement mag. We have become, in a way very few other nations have, a people who define ourselves by the places we live in.
I have, I confess, a personal interest in all this, because I cannot afford to buy a house for my family in London. Back in 1985, I bought the first and only home I’ve ever owned here: a small one-bed flat on a busy bus route in Acton. It cost £32,000, which was well under twice what my then wife and I earned in a year (and we had to endure a half-hour grilling with the bank manager to get the loan.)
A couple of years later I moved abroad, and in 1989 the flat was sold, for about £70,000. We won’t do better than that, I thought. And I stayed abroad, in a range of European cities where most people are just as happy to rent as they are to buy, for nearly 20 years. Last year I came back, and discovered that the same first-time buyer’s, one-bed flat was worth, near as dammit, a quarter of a million pounds.
That meant, I calculated, that many young couples would probably need to borrow six or seven times their joint income to buy it. Which, it seems to me, is an insane state of affairs. (In fact, even earning what I consider a pretty fair salary, in my late 40s, and taking into account a 10% fall in property prices, I still could barely afford that flat - let alone the three-bed place I now need.)
So is there a way out of it? The market itself may do some of the work. Badly burned banks, one hopes, may have learned their lessons about responsible lending; once the present turbulence is over, mortgages will perhaps return to the traditional maximum of two and a half or three times properly verified earnings. That would calm things down. And even if house prices do end up falling 20% or 30%, no one is predicting that will be followed by a repeat of the vertiginous, unsustainable inflation of the past couple of decades. If we all get used to small, steady price increases of maybe 4% or 5%, perhaps we’ll stop dreaming our property dreams. Long term, certainly, house prices cannot continue to outstrip the ability of people to pay for them (although there will always be an international market, in London, for excess).
But it may take a generation or two before we erase a culture that hammers home, wherever you look, the enticing message that home ownership is the best route to personal wealth. Shelter’s Sampson suggests a number of strategies that could, perhaps, speed up the process: first up, a thorough review of the link between housing and taxation.
“There’s nothing intrinsically wrong with home ownership,” he says, “particularly if the alternative is expensive private renting with a maximum of six months’ security of tenure, or increasingly residual social housing. Home ownership encourages stability and social stakeholding. But in recent years my house has earned far more than I have. I work and am taxed; it doesn’t and is not. Is that justifiable?” (It may not be, but there are problems with this option. If you tax the profit made on selling a primary residence, what do you do about a loss?)
Less controversially, perhaps, it would help if private renting was a genuine alternative to ownership, as it is in much of mainland Europe, where most tenants benefit from long-term security and relatively low rents. “We also need to rethink our relationship to the homes we live in,” says Sampson, who believes the kind of sale-and-leaseback scheme proposed by the government this week to help homeowners threatened with repossession could and should be more common. Just as buyers take years to acquire a house by repaying a mortgage, owners should be able to step out gradually, too. “We need to reach a point where just because you’re no longer the owner, it doesn’t mean you have to abandon your house. What you have is a home: you may rent it, you may buy it.” Or it may be a bit of both.
Building enough new houses - which we have not been doing since the 1970s - might help restore us to sanity, too. But the impact would, experts reckon, be marginal: Ireland has practically doubled its house numbers over the past decade, and watched its property prices also double. Gordon Brown has promised to build 3m new homes in Britain between now and 2020, including a deeply controversial clutch of so-called ecotowns but, even assuming the construction business recovers from its current catastrophic slowdown, this is going to be an almost impossible target to meet.
Planning constraints, and the often concerted opposition of local homeowners convinced that any major new developments in their back yards will inevitably knock thousands more off the value of their houses, make major new building projects in this country a fraught affair. In the idyllic countryside around Stratford-upon-Avon, for example, the cunningly named Bard campaign (for Better Accessible Responsible Development) is fighting a fierce rearguard action against a 6,000-home ecotown planned for a former MoD site at nearby Long Marston.
Some 15,000 people have so far signed Bard’s petition against the development, which, it says, meets no discernible local housing or employment needs and will result in thousands of new car commuters - there being little or no public transport - swamping historic Stratford with traffic on their way to the big urban conurbations to the north.
Ecotowns have run into some trouble since the prime minister first floated the plan this time last year. Six of the 16 projects, each containing between 5,000 and 20,000 supposedly eco-friendly new homes, 30% them affordable housing, have already fallen by the wayside, and a seventh has been radically scaled back. In the face of mounting local opposition and the very real prospect of court action, the housing minister, Caroline Flint, recently let it be known - albeit discreetly - that the final list of approved projects, now likely to total considerably fewer than the original target of 10, will not be announced until next spring, several months later than scheduled.
Bard has some big-name backers, including Dame Judi Dench, John Nettles, Julian Lloyd Webber, publisher Felix Dennis and - rather ironically, given the group’s traffic concerns - ex-formula one driver Johnny Herbert. But no matter how valid the arguments, it’s hard to believe that Bard’s opposition is not also reinforced by nimbyism. Protesters here do fear for their house prices, and several sales have fallen through since the ecotown plan was announced. “Fundamentally, it’s about preserving our existing environment,” confesses Clive Moy, a retired chartered surveyor. “Most of us chose to live here, in this wonderful countryside, and the last thing we want is a new town in the middle of it.”
Sampson is not entirely downcast. “It could be, it just could be, that looked at through the long lens of history, Britain’s mad rush towards property ownership over the past 20 or 30 years will be seen as an aberration,” he says. But in order for that to happen, there will have to be a fundamental shift in our attitudes. Somehow, we are going to have to start thinking of houses simply as homes again. And how many of us are ready to do that?
· The Price of Property, Jon Henley’s four-part look at the way the stampede for home ownership has changed Britain, begins at 9pm on Monday on Channel 4.