Written by Alex Talbot
The DSM-5 describes bipolar disorders as a group of brain disorders characterised by their tendency to cause extreme fluctuations to a person's mood, energy and ability to function[1]. Periods of manic high and crushing low typify the portrayal of the condition in popular culture. It is this dichotomy; the tale of two utterly different experiences that I want to argue characterises the current state of the British housing market. Split neatly between its most prominent cleavage of ownership and renting, the experience of both, while always comparatively stark in a nation 'obsessed' with ownership, has seldom been as stark as now.
The Historic Housing Landscape
The UK, like all advanced economies, has two main types of housing tenure; ownership-based, and rental based. Banks provide mortgage credit to households so that they, combined with a portion of equity in the form of a deposit, can buy their home either to live in themselves or to act as a landlord and rent out. On the rental side, households can rent a property either from a private sector landlord or from the state (Councils), or registered quasi-charitable bodies known as Housing Associations, this is known as social housing and is typically reserved for low-income households.
The mixture of these three types, owner-occupier, private rental and social rental has varied quite considerably over the last century.
Source: Savills, 2015[2], this data is for the UK but broadly mirrors the English experience
The type of housing tenure also varies considerably by region.
Source: House of Commons Library; Homeownership and renting demographics, 2017
There are two additional and important points to grasp about housing tenures in England. Firstly, for a variety of reasons, some economic but most cultural, the majority of UK residents aspire beyond nearly all things to own their home. Renting, has for a long time, been heavily stigmatised both by both politicians and the media. Owner-occupying, even when financed by extremely high levels of mortgage credit by international standards, allows something that renting doesn't, buying at one price and selling for another, hopefully, higher price. This act of 'flipping' one's home, riding the waves of speculation, has fittingly been described as a "national sport"[3] in the Anglo-American world.
Secondly, and most certainly relatedly, has been the consistent pandering of politicians to both current and aspiring homeowners. As the graph above shows, owner-occupation has had a steady rise to become unquestionably the 'tenure of choice' in England. In parliamentary democracies, such as Britain's, majorities matter. As Downs[4] so eloquently demonstrated the policy preference of the medium voter matters and in England that median voter owns rather than rents their home. This single fact has important implications for both government and opposition policy. In short:
It's the reason that the majority of government subsidy for housing flows towards the owner-occupier market despite it being home to the wealthiest sections of English society
It's the reason that England has some of the weakest rules protecting private renters in the developed world[5],[6]
It's the reason that one of the longest-running, most popular and most frequently spun-off policies in England is one that allows social renters to buy their Council home at eyewatering discounts (a policy known as Right-to-Buy)
And it's the reason that housing policy was in fact quite difficult to distinguish as the Government of the UK switched from Conservative to Labour and back again between 1996 and 2011[7]
This is, of course, an oversimplification but not as much of one as it should be. It's essential that this point is grasped as we now consider what's currently happening in the English housing market.
What's happening now in 2020?
Rental Sector
Turning first to renting, the situation looks bleak. Households renting either socially or privately (there are differences, but the average holds) are most likely to be younger, in less secure forms of employment, more likely to work in a profession unable to work from home, and much less likely to have access to any form of significant savings that could help them smooth a transition of joblessness[8]. The implication? That for both the private and social sector renters are both more vulnerable to the effects of this deep and increasingly long-lasting recession, while also being critically less able to mitigate those effects when they do arise. Considered together, the expectation is for at least 30,000 additional evictions, a doubling of rental-areas owed to private landlords (a key cause for eviction), and around 6% or 120,000 of those renting building up rental arrears, many with no savings[9]. Between private and social tenants around 2.5 million are worried about paying their and a shocking 70% have cut back on essentials in order to get by[10].
What protection has been afforded to renters? The English Government's primary approach has been to ban landlords from seeking repossession in court. Through what can only be generously described as unorganised, the Government extended this ban twice – the second time only coming into effect hours before the ban expired. From the 20th of September, court proceedings for evictions have been allowed. The Government has also changed rental terms to now make it mandatory for the majority of private tenants to receive 6-months' eviction notice period up from 2 previously. This is unquestionably a welcome change but do bear in mind that housing campaigns have been lobbying for this since the introduction of assured shorthold tenancies (which are almost ubiquitous in the private rental sector) - that was in 1988! However, this has essentially kicked the can down the road with the situation still looking extremely serious for many as we now await March when those 6-month notices will expire. Indeed the only thing looking likely at preventing mass evictions come March looks set to be the “mess” of the court system[11] - hardly a cause for celebration. Much more can be written on this topic, but I'll leave you to decide how much you think Government is prioritising the 36% of the population that rent.
Owner-occupier Sector
What then is happening in the owner-occupier market. On the protection side, the Government, through the financial conduct authority and working with all mortgage creditors, rapidly put in place 'mortgage holidays' of up to three months for those unable to pay their mortgage. That still applies until 31 March 2021, meaning it was enacted before and has lasted considerably longer than the ban on eviction court proceedings. While the end of the scheme will mark a period of less protection of owners, they on average are far more likely to have savings, and there is a strong expectation that Government will put extreme pressure on creditor's to limit repossessions to an absolute minimum[12], as happened post-2008.
But what about in the market for buying homes? Well if you speak to anyone in the business of selling homes, they'll probably tell you they've never been busier. Rock bottom interest costs are making mortgages much cheaper for those that can get them. Furthermore, the chancellor announced in early July that stamp duty (which is a tax paid upon purchasing a home) would be exempt for the first £500,000 of a home purchase for anyone, raising the threshold from £125,000 previously. The result has been a turbocharge to demand, which was already strong due to months of pent-up lockdown demand. Such strong demand, even with a considerable uptick in homes coming to the market, has fed into strong price growth with record highs both month-on-month and year-on-year.
Will the party ever end? Well, yes. Most commentators do expect some re-adjustment, particularly after the temporary stamp duty threshold ends come April. The end of the mortgage holiday and sustained pressure on paying their mortgage might cause some forced sales, which will likely put downward pressure on prices, but as already noted, the Government would likely put exceptional pressure on mortgage lenders to limit repossessions so it seems unwise to overestimate the effect this will have. Taken on balance, Savills, a major property consultancy and estate agent, are expecting at worst flat prices next year with a significant uptick in following years across all regions.