The price of housing, both to purchase and rent, is severely distorting British society. The absurd cost of property now – around £165,000 on average and considerably more in areas such as Central London where a studio flat costs upwards of £200,000 – makes it impossible for the large majority of people to get on the housing ladder which in turn inflates rents. The lack of housing scandal, for that it what it is, poisons the lives of ever increasing numbers of people in Britain. The fault lies at the feet of reckless politicians who allowed the incontinent housing boom, failed to build adequate social housing for 30 years and permitted mass immigration.
Things used to be very different. In 1955, a time when there was still a shortage of housing after the war, the average price of a UK property was £2,000 (1) , which adjusted for inflation is £39118 in today’s money (2 ). The average weekly wage was £10 17s 5d (3), worth £ 212 in 2010 (2). This meant that someone on average earnings in 1955 could purchase the average priced property for less than four times yearly earnings.
Today the average wage is approximately £25,500 having dropped from £28,000 in the first six month so 2010 (4) , With the average price at £165,000, the average earner needs more than six and a half time annual earnings to purchase the average property. In fact, the would-be purchaser today is even worse off because the taxation of the average wage now is more severe than it was in 1955.
To the problem of obtaining a mortgage today is added the need for much increased deposits since the economic crisis became full blown in 2008 after the collapse of Lehman Bros. To get property suitable for raising a family in most parts of the UK would cost in the region of £200,000. Even on an income of £50,000 a couple would struggle to find the now commonly required 15-25% deposit for such a property.
As for the large majority earning around the average income or below , a property purchase is out of the question. In places such as London even those on £50k would be priced out of the market because a studio flat can cost £250-300k. The sad truth is that most people who have not already got on the housing ladder are unlikely to ever get on it as things stand. Instead they will have to pay extortionate rents with precious little security of tenure.
Imagine how easy it would be to live in Britain now if housing was in real terms as cheap now as it was in 1955. Someone on less than half average earnings would be able to buy a starter home. The private rental sector would fall considerably both because much of the cost of renting comes from the capital value of the house and the demand for rented housing would be much reduced.
The cost of housing is striking at the heath of society in the most fundamental way: it is preventing people from starting a family viz.:
“The findings suggested 18 per cent of 18 to 44 year olds, equivalent to 2.4 million people, are actively putting off having children because of high housing costs. This rises to 24 per cent among 18-34 year olds. One in five 18-44 year olds have waited for as long as six years to start a family, while 37 per cent expect housing costs to continue to delay their plans for another four years, according to the survey by the charity Shelter.” Two million Britons delay having a family due to high housing costs – Myra Butterworth : Daily Telegraph 18 Jan 2010)
This is unsurprising, for how can a young couple today who cannot afford to buy a property – the vast majority – be expected to have any sort of settled family life when they cannot buy , social housing is scarce and private rented property has little security of tenure..
The coalition government has just made a bad situation worse. In the 2010 spending review it announced that new tenants for social housing would have to (1) pay 80% of the market rent – which would make it impossible for large parts of the population to live in places such as London – and (2) not have security of tenure for life. (There is policy creep on these things and it is odds on that once the principle is established, part of all of the new regime will be extended to existing tenants.)
It is important to understand that it isn’t only those who have purchased a property or who own it outright who are effected. If only a fifth of those struggling to pay their mortgages lose their homes that will be hundreds of thousands of people in need of rented accommodation on top of the hundreds of thousands who are already on council and Housing Association waiting lists. Such an influx will not only increase competition for social housing, it will push up private rents. The other major effect of reducing house prices will be fewer and fewer new build houses.
We are rapidly returning to the housing shortages of the post-war decade. Then a massive programme of council housing was followed by first Labour and then the Tories. The same is needed now together with action to force developers to build on land they hold or the land to be subject to compulsory purchase at a price for the land without planning permission. The following is also needed:
1. The end of the Right To Buy
2. The end of buy-to-let mortgages
3. The re-imposition of formal controls on mortgage lending to ensure there is not another housing bubble – see appendix.
4. A restriction of social housing to those born British citizens. It is indefensible for foreigners to be given housing before those born and bred here have their needs satisfied.
Of those suggestions all but the last are still within the remit of Westminster. Britain can stop immigrants from outside taking social housing , but as was shown by the response to Gordon Brown’s “Social housing for local people” in his last months in number 10, such preference would fall foul of both British and European law; British law because of the requirements of our equality legislation and the obligation on local councils to house vulnerable people in need, especially those with dependent children, and European law because any person legitimately resident in the EU has the right to move to any part of the EU and receive equivalent treatment in terms of social provision to the citizens of the receiving state. It is also probable that the Human Rights Act would come into play, most probably with the clause relating to the right to enjoy a private life. Britain would have to either leave the EU or force a change in EU law to stop EU residents from outside the UK taking social housing.
The problem of immigrants taking social housing is significant. The Equality and Human Rights Commission produced a report in 1989 which showed immigrants in approximately 10 per cent of social housing (5). Even with the coalition government’s proposals for new tenants, t his is likely to increase substantially as those who flooded into the UK when the new entrant countries such as Poland joined will soon begin to qualify for social housing.
The cruel truth is that the prudent have been subsidising the imprudent since the beginning of this crash. Those without mortgages, both those who own outright and those who rent, are paying through depressed wages, lower benefits, reduced public services and the long term debt caused by the excesses of the past 12 years. Those who are being subsidised are the people who took out massive mortgages, often by the straightforward fraud of exaggerating their incomes, and/or ran up vast debts by drawing on the equity in their homes. The heaviest losers are those who have never owned a house outright or had a mortgage. They have gained nothing during the property boom and have had every rising rents inflicted upon them as property prices inflated unconscionably.
A sane policy on mortgage granting would require these simple controls:
1. No mortgage of more than 3 times earnings for an individual or 4 and half times earnings for a couple.
2. Minimum of 15% deposit.
That was roughly the position until Thatcher removed the controls on lending in the 1980s.
The end of self certificated incomes for mortgages is welcome but it needs to be done efficiently. It is no good looking at just pay slips for those under PAYE or accounts for the self employed because these are potentially under the control of the mortgage seeker through the forging of convincing payslips (easily done with modern computers and printers) or a collusion between the mortgage seeker and a crooked accountant. Moreover, an honest accountant is dependent on what the self-employed give them by way of accounts.
For the vast majority (those under PAYE) the check should be done using not only current payslips, but the previous year’s P60 (this is HMRC’s statement of earnings and deductions for those under schedule E (effectively those under PAYE). In addition, bank statements and credit card statements should be sought to verify claims of indebtedness or the lack of it. The mortgage provider also has many opportunities via Internet searches in including most pertinently credit rating agencies and county court judgements. I would not mind betting these searches are not made in the vast majority of cases. What is not needed is a minute audit of a person’s spending habits.
For the self employed the position is more complex because the best they can ostensibly do is provide accounts compiled by a qualified accountant. Here they often find they have shot themselves in the foot because in preparing accounts for tax purposes real incomes are almost invariably understated if the person is earning above the tax threshold. Thus they evade tax but find the mortgage providers taking the tax income figure as the earnings even though it is much below the real income. However, provision of bank and credit statements could go some way to mitigating the problem by providing evidence of the real income. In addition, things such as credit rating checks and county court judgement searches would be most important because a self-employed person is more likely to end up with county court judgements against them. They are also much more likely to have been made bankrupt.