20% of the youngest voters in Britain put housing as one of their top issues in July this year. Photo / 123rf
20% of the youngest voters in Britain put housing as one of their top issues in July this year. Photo / 123rf
In the 1970s, my grandparents moved from a council house in Hartlepool to one in Welwyn Garden City. In 1987, they bought that terraced house with the help of Margaret Thatcher’s flagship housing policy Right to Buy, which enabled council tenants to purchase their property at a big discount.
Three years on, when house prices were rising, they flipped it, bought a house in Milton Keynes on the mainstream market, and funded their retirement and a trip around the world.
This was what Right to Buy was meant to be all about: social mobility. It fed the political rhetoric of the time: that with homeownership came independence and self-reliance – “the bedrock of a free society”, in the words of Michael Heseltine.
Forty years on and, rather than feeling empowered, many households in Britain are either trapped by their housing costs or shut out of home ownership altogether.
When Right to Buy was launched as part of the Housing Act 1980, 55% of households were homeowners. The figure peaked at 72% in the early 2000s and has fallen back to 65% – hardly the “property-led democracy” that Thatcher has pictured.
The sales data shows a similar pattern. There were 1,068,000 homes bought in the 1960s, rising to a huge 1,873,000 in the 1980s. Transactions have plummeted to a sluggish 1,195,000 over the past 12 years.
This indicates a stark lack of social and geographic mobility in today’s housing market. The elderly are rattling around large, detached houses; families are unable to upsize from flats they have outgrown; urban dwellers are paying extortionate rent in cramped accommodation, unable to save for a deposit; and graduates are back living at home. Vulnerable families with small children are stuck in grim, substandard hotels due to a lack of council houses – and the homelessness crisis is raging.
So, where did it all go wrong for the housing market, once considered a British institution, and when did the rot truly set in?
Passing the affordability crisis to the next generation
Despite the peaks and troughs of home ownership and sales, the “must own” mindset has consistently remained part of the national psyche. YouGov polls prior to any general election show this. In July, for example, 20% of the youngest voters in Britain put housing as one of their top issues.
The baby boomers, who have benefited from a 1419% growth in house prices since the 1980s and amassed £2.6 trillion ($5.64t) in housing wealth, have certainly passed down their love of bricks and mortar. However, unless they have also passed on a substantial cash gift, there remains a striking mismatch between ideal and reality for their children and grandchildren.
Rising house prices, high deposit requirements and 14 consecutive interest rate hikes have taken affordability ratios for first-time buyers to record levels.
First-time buyers across the country are paying £350 more a month in mortgage repayments than they were five years ago, according to Rightmove, from £578 on average to £931. For householders in the northwest this is a 75% jump.
The situation is further exaggerated in London. Here the average deposit requirement for a first-time buyer is 30% (to get around loan restrictions) totalling £142,588 – about two and a half times everywhere else.
Lucian Cook, head of residential research at Savills, sums it up: “The ability to get on the housing ladder has been constrained by the very house price growth which previous generations have benefited from.
“In addition, the very strong burst of house price growth we saw in 2001-04 meant we faced a new affordability challenge, deposit affordability, from the mid-2000s onwards,” he says.
The situation is further exaggerated in London. Photo / 123rf
When demand outstrips supply for decades
The long-term lack of house-building, going back to the 1980s, has resulted in this untenable affordability crisis.
A paper by professors Paul Cheshire and Christian Hilber, both of the London School of Economics and the Centre for Economic Performance, spells out the scale of the problem.
“In the 30 years from 1989, 3 million fewer homes were built than in the previous 30 years, but demand increased almost year by year as real incomes and population increased,” it says.
This imbalance between supply and demand has stretched affordability. In 1997, the ratio of house price to median income across England and Wales was 3.6 and in London it was 4.0. By 2023, the median house in London cost 12 times the median earnings and even in the least unaffordable region, the northeast, the ratio was fivefold.
“The ensuing crisis in affordability drives a wedge into the fabric of society, as housing wealth is redistributed towards older homeowners,” the paper reads, “while younger renters and would-be buyers are confronted with ever-rising housing costs and deposit constraints. Only younger people whose parents – even grandparents – were homeowners can now be reasonably optimistic of being able to buy.”
Mum of five Carly-Emma White, 41, and her husband, Andrew, had lost all hope of getting out of rental accommodation after Covid. Carly-Emma works as a compliance officer in the energy sector and Andrew is a welfare officer, but their reduced earnings during the pandemic led to mounting debts, which, although they paid off over two years, meant they were blacklisted by high-street lenders. “I knew we never stood a chance of getting on the ladder in the traditional way,” says Carly-Emma.
Via a mortgage broker called Together, they managed to secure a mortgage for a shared ownership home in the village of Markham, Nottinghamshire. This “affordable homes” scheme enables a buyer to purchase a share of a property, on which they pay a mortgage while paying rent for the rest.
It comes under criticism from advice organisations such as HomeOwners Alliance (HOA), because the part-homeowner also gets stung for 100% of the service charge. But, as long as prices go up, the idea is that over time the cash-strapped resident increases their share (known as staircasing) until they own the home outright. “We paid £129,200 for just a 40% stake over a 26-year period, but it gives us peace of mind that month to month the landlord won’t sell from under us,” she explains. It was their only way.
Paula Higgins, chief executive of HOA, believes the new Labour government will lean away from affordable schemes such as shared ownership in next week’s Budget and prioritise social house-building, meaning this route to home ownership for working families and young professionals could be blocked.
Shelter is a human right and yet, too often, the property market is used as a political tool. In 2020, there was a brief but aborted attempt to streamline and modernise the planning system laid out in the Planning for the Future white paper and speed up the delivery of housing. It was badged by the Boris Johnson government as a once-in-a-generation reform. However, this was abandoned following the shock Liberal Democrat win in the Chesham and Amersham byelection, a Conservative safe seat.
The upset was perceived to be a warning shot from voters as residents feared the cutting of red tape would open the floodgates to a swath of new developments.Both planning reform and hard targets to deliver homes get dropped when trying to appease the already home-owning electorate (sometimes dubbed the nimby brigade). As recently as 2021, 45% of local authorities had an approved plan to build more homes, by autumn 2023 that had fallen to 33% and is projected to fall to 25% by 2025.
Bob Weston, founder of the house builder Weston Homes, believes the problem has worsened over the past few years. Michael Gove axed compulsory housing targets for local councils and since then, Weston claims, there has barely been a mention of housing in any fiscal announcement. “That’s my evidence that the government has become anti-developers,” he says.
“Supply is 40% lower than it should be because of the number of hoops we have to jump through within the planning system,” Weston continues. “We are accused of landbanking [developers buying up land and sitting on it so the value increases] but it takes on average two years just to get the initial planning approvals through the system and then there’s another 30 or 40 applicants to process. It can take three to four years to get close to even digging a hole.”
Jackie Sadek, former government adviser and author of Broken Homes, says “the problem of the housing crisis is so entrenched that it needs a cross-party accord. And before anyone says that’s in the too-difficult box, I heard this idea mooted earlier this year by a very senior Conservative politician”.
“Labour’s target of 300,000 homes a year is not so very different from the totally nonsensical housing targets we’ve not met for the last 10 to 20 years,” she continues. “There is a consensus in the property industry that there is no alternative to a wholesale return to building some form of council housing. Even if you call it something else. The last time we did not have a housing crisis was when the state was still directly intervening in delivery – over 40 years ago. Even the captains of [the house-building] industry are positive about a council housing programme funded by the government where they are just hired as the contractor, returning to their construction roots.”
The housing market has become a toxic quagmire, a mixture of short-termist, inflationary policy designed to stimulate sales alongside punitive tax measures, which have the opposite effect – underpinned by the lack of supply.
There are opposing forces at work. The Mortgage Market Review was introduced by the Bank of England after the 2008 global financial crisis to ensure responsible lending practices to high-risk borrowers, which hit the London market harder than anywhere else. “Capping loans higher than 4.5 times incomes meant the deposit requirements shot up in the capital and sales fell to around 4% of housing stock (from a national norm of 5 to 6%). It really weighed on activity,” says Cook. And yet, at the same time, David Cameron’s administration was trying to stimulate demand from first-time buyers through the Help to Buy scheme.
“We live in an age of mortgage regulation. In making sure we don’t allow people to overstretch themselves we have created a tension between the regulators, whose overriding objective is to ensure responsible lending, and policymakers keen to keep the dream of home ownership alive,” he explains.
‘Futile and wasteful’ short-term policies
Help to Buy has courted criticism. The shared equity scheme meant first-time buyers could purchase a new-build home with a 5% deposit topped up by the government. It was accused of inflating property prices and lining the pockets of the major house builders. But it did get them building and powered the housing market out of the shadow of the global financial crisis. The scheme was scrapped last year.
Help to Buy is an example of a crisis-led, short-term policy to stimulate demand. The next was the stamp duty holiday, introduced in the 2020 emergency summer Budget. It promoted a rush to buy as urban families fled the cities in search of space.
However, because there was a deadline, it pushed lots of people to move at once, causing a spike in house prices (particularly in rural and coastal areas) just before 14 consecutive rises in interest rates. This meant many households had paid over-inflated prices in the stampede only to find their mortgage repayments quadrupled.
“The government’s approach to addressing housing affordability has been to engage in symbolic, futile and wasteful policies, boosting demand for first-time buyers,” says Cheshire. “This only increases house prices further in areas with tight constraints where affordability is worse.”
Arguably, Britain's housing market has been broken for 70 years. Photo / 123rf
Stamp duty stifles movement
In fact, the entire stamp duty system comes under fire before every Budget or Autumn Statement as a heavy-handed tax that stifles movement.
In 1980, the average stamp duty bill for someone buying a property in London was 1% of the overall price (£240), 0.5% across England (£92) and 0.5% for a first-time buyer (£76). By 2024, the proportion for Londoners has jumped to 2.6%. That’s a bill of £14,061 on the average property worth £531,212. A family buying a four-bedroom terraced house (with a small garden) in Kingston-upon-Thames for £800,000 will foot a tax bill of £27,500. For the average buyer across the country, Stamp Duty Land Tax (SDLT) sits at 1% (£2979).
“SDLT never used to be levied on most people buying a home. The point at which it kicked in was routinely updated to keep the average buyer’s bill down to zero,” explains David Fell, analyst at Hamptons. “This started to change in 1997 when new bands were introduced at £250,000 and £500,000, well above the average price. But as house prices have risen these thresholds have not been updated, dragging more buyers into paying higher rates,” he says.
Of course, with the astronomic rises in house prices in London and the southeast these bills are dramatically bigger. The £250,000 threshold was introduced as a tax on the most expensive property purchases, but just nine years later, in 2006, the average house price in the capital surpassed this value, meaning the typical Londoner was taxed more heavily than ever before on their move.
“More recently the introduction of a £1.5 million band meant the top end of the market saw bills rise from 4% on all the purchase price to 12%,” Fell adds. “And history suggests these bands probably won’t rise with inflation, meaning over time they’ll begin to bear down on more mainstream households.”
Peter Harvey, 77, a retired accountant, is trying to sell his seven-bedroom family house in the village of Rowledge, Surrey, to downsize to a complex on the river in Henley-on-Thames. The family home of 37 years, in a magical woodland plot, was put up for sale with Winkworth in September and has only had one viewing.
“A family came to look round it as we are in walking distance of two secondary schools – rare for a rural location – and sounded really positive. But they called the next day and said they couldn’t afford it,” says Harvey. The £2 million price tag plus stamp duty, which (as calculated on Rightmove) reaches £151,250, was too much of a stretch. “At this level of the market buyers are sitting on their hands and waiting for the doom and gloom Autumn Statement to offer some certainty,” he says.
It looks as if the burden of stamp duty might increase after the Autumn Statement. Rumour has it that Rachel Reeves will lower the threshold for first-time buyers from £425,000 to £300,000, without any regional variation. This means the tax bill will rise to 3.1% by April 2025, equating to a bill of £16,561 in London.
The sacrificial landlord
The abandonment of the rental sector has far-reaching consequences across the housing market. A series of government interventions ended the boom era of buy-to-let and started to chase the small, private landlord out of town. Most notable was George Osborne’s move to phase out existing interest rate relief on buy-to-let mortgages between April 2017 and 2020. This was followed by an additional 3 percentage point stamp duty surcharge on multiple homes. As a direct result, the number of buy-to-let mortgages halved, the supply of rental accommodation for tenants was squeezed and rents have soared.
This was a move to stop buy-to-let investors competing with first-time buyers for newly built units or converted flats. However, the policy of “first-time buyers good, landlords bad” was a dangerous oversimplification of a housing market in which the rental and ownership sides must work in harmony.
The exodus of landlords, battered by an accumulative tax burden, just as renters were returning to the big cities after the pandemic, pushed rents up by 17.1% in London in the year to August 2023 (the peak) and 12% across the UK as a whole. Although the rate of growth has slowed, rents are still tracking upwards in 2024 – 2.1% in London and 4.5% across the nation as a whole. A paper from the Resolution Foundation expects rents to continue to outpace wage growth.
This forces tenants to convert living spaces into bedrooms and squeeze more people into one house, and prevents them from saving for a deposit (and stamp duty) to make the move from rental to owning their own home.
The lack of supply also has unintended consequences for those in need of temporary accommodation or those paying social rent (a council house). Local Housing Allowance (LHA), the funding set aside to place vulnerable families into temporary rental homes, can no longer stretch to cover average rents in cities across Britain. Research from London Councils has found that 5% of the rental homes owned by London’s private landlords are affordable to people who use LHA, down from a third.
But can we fix it?
Arguably, the housing market has been broken for 70 years, ever since the Metropolitan Green Belt was launched in 1955. This protected area around London was quickly followed by green belts around all English cities, all designed to prevent development.
No party is proposing to concrete over the countryside. But there is a lobby to sensibly reclassify some greenfield sites (with no real ecological value) to brownfield – and brownfield (which has high levels of biodiversity) to greenfield.
Even the flagship Right to Buy policy, which, in the 1980s, was perceived to be the golden era of the British property market, must bear some culpability. “Right to Buy is another policy initiative which has implications for subsequent generations because we didn’t ring-fence the receipts to replace stock lost from the affordable housing sector,” says Cook.
The starting point for the present government, or a cross-party housing group, should be to agree on how a healthy property market is measured. It should not, Cook continues, be defined by soaring prices that benefit only homeowners. Every time values have spiked way above wage growth, they have subsequently plummeted.
“Initiatives such as the stamp duty holiday turbocharged the housing market between 2020 and 2022,” adds Cook. “House prices nationally rose around 11%, more than doubling wage growth (5%).
“We cannot keep stretching the relationship between house prices and wages. We do not want to see house prices fall as that impacts economic confidence, but slower growth than wages, at a gradual pace, would help improve affordability and ease the pressure.”
