Why we must end the UK’s addiction to property

There is nothing aspirational or equitable about courting another recession.

They say an Englishman's home is his castle but the UK has a particular problem with our addiction to house-price inflation. Before the crash, house prices trebled in the space of a decade. Great for those that bought at the right time, but not for others.

As a nation, we are used to borrowing beyond our means. The UK mortgage market had the second-highest loan-to-value ratio of any OECD country before the financial crisis.

At a household level, first-time buyers who were offered 125 per cent mortgages and found themselves in negative equity following the crash.

There are roughly a million people who owe more than their homes are now worth. UK households still have more mortgage debt, relative to their income, than households in any other major economy.

There have been four housing bubbles in the UK in the past 40 years. They can be hard to spot but they invariably lead to economic bust when they burst. Macroeconomic stability matters and volatility in the UK's housing market has played a destabilising role.

One solution is to increase the supply of housing, as proposed by Kate Barker in her landmark 2004 review. But while building extra houses is absolutely necessary to constrain excessive house-price growth in the long term, housebuilding is slow to take effect. But we also have to tackle demand. And housing market demand is mediated by the availability of mortgages.

A new IPPR report published today, Forever Blowing Bubbles? Housing's Role in the UK Economy, argues that policymakers need to learn the lessons of the credit crunch. The report argues that the UK's addiction to house-price inflation is bad for the economy and that a central plank of government economic policy should be to ensure that there is greater stability in house prices.

Regulation to end speculation

IPPR's critics suggest that such an approach threatens to thwart aspiration and hinder social mobility. But there is nothing aspirational or equitable about courting another recession. And there is absolutely no reason to believe that the next housing bubble will serve first-time buyers any better than the last.

The onset of loose lending around 1999/2000 correlated strongly with the start of a downward trend in the number of first-time buyers. Far from helping home ownership, it drove it further out of their reach.

Conflating aspiration with higher levels of mortgage debt is a mistake. People with high levels of debt – notably high loan-to-value ratios – are much more likely to fall into negative equity.

Monetary policy has a part to play – house prices should be a more explicit consideration in its formulation – but it is a blunt instrument, with the hikes in interest rates needed to dampen future housing booms likely to come at the cost of excessive pain to the wider economy.

Fiscal policy – such as stamp duty or council tax – is certainly important in egalitarian and distributive terms, but tangential in terms of its actual impact on house pricing, and politically highly fraught.

The Joseph Rowntree Foundation's Housing Market Taskforce concluded its work earlier this month with some interesting recommendations on property taxes. But mortgage regulation is the most important tool in controlling demand in the housing market.

Deposit requirements on buy-to-let mortgages should be raised and lenders should ensure that rents cover repayments. Small-time speculators seeking a fast buck in the form of excessive capital gains from the buy-to-let market need to be deterred. Instead, we should be encouraging institutional investors into a more professional and more secure private rented sector to build to let.

Short-term thinking

In particular, when it comes to mortgage lending, the government and regulators need to hold firm in the face of industry lobbying and impose a 90 per cent cap on loan-to-value ratios and a 3.5 times cap on loan-to-income. Put simply, a mortgage of no more than £90,000 could be lent to buy a home worth £100,000 and a couple where each is earning £25,000 could borrow no more than £175,000.

We need to strike the right balance, allowing people to take out affordable mortgages while reducing the risk of excessive borrowing creating instability in the economy as a whole.

Mortgages are usually a 25-year commitment and high loan-to-income ratios allow borrowers to take out large mortgages that appear affordable at very low interest rates, but with no guarantee that interest rates will remain low, heightening the risk of defaults and repossessions. A 90 per cent loan-to-value ratio allows for a 10 per cent fall in the price of the investment before negative equity takes hold.

As Shelter has found, this is an argument that first-time buyers support, even though it may make it more difficult for them to get on to the housing ladder. They recognise that loose lending and cheap credit are a recipe for future instability both in our housing market and in our wider economy.

Andy Hull is a senior research fellow at IPPR.

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How the Lib Dems learned to love all-women shortlists

Yes, the sitting Lib Dem MPs are mostly white, middle-aged middle class men. But the party's not taking any chances. 

I can’t tell you who’ll be the Lib Dem candidate in Southport on 8 June, but I do know one thing about them. As they’re replacing a sitting Lib Dem (John Pugh is retiring) - they’ll be female.

The same is true in many of our top 20 target seats, including places like Lewes (Kelly-Marie Blundell), Yeovil (Daisy Benson), Thornbury and Yate (Clare Young), and Sutton and Cheam (Amna Ahmad). There was air punching in Lib Dem offices all over the country on Tuesday when it was announced Jo Swinson was standing again in East Dunbartonshire.

And while every current Lib Dem constituency MP will get showered with love and attention in the campaign, one will get rather more attention than most - it’s no coincidence that Tim Farron’s first stop of the campaign was in Richmond Park, standing side by side with Sarah Olney.

How so?

Because the party membership took a long look at itself after the 2015 election - and a rather longer look at the eight white, middle-aged middle class men (sorry chaps) who now formed the Parliamentary party and said - "we’ve really got to sort this out".

And so after decades of prevarication, we put a policy in place to deliberately increase the diversity of candidates.

Quietly, over the last two years, the Liberal Democrats have been putting candidates into place in key target constituencies . There were more than 300 in total before this week’s general election call, and many of them have been there for a year or more. And they’ve been selected under new procedures adopted at Lib Dem Spring Conference in 2016, designed to deliberately promote the diversity of candidates in winnable seats

This includes mandating all-women shortlists when selecting candidates who are replacing sitting MPs, similar rules in our strongest electoral regions. In our top 10 per cent of constituencies, there is a requirement that at least two candidates are shortlisted from underrepresented groups on every list. We became the first party to reserve spaces on the shortlists of winnable seats for underrepresented candidates including women, BAME, LGBT+ and disabled candidates

It’s not going to be perfect - the hugely welcome return of Lib Dem grandees like Vince Cable, Ed Davey and Julian Huppert to their old stomping grounds will strengthen the party but not our gender imbalance. But excluding those former MPs coming back to the fray, every top 20 target constituency bar one has to date selected a female candidate.

Equality (together with liberty and community) is one of the three key values framed in the preamble to the Lib Dem constitution. It’s a relief that after this election, the Liberal Democratic party in the Commons will reflect that aspiration rather better than it has done in the past.

Richard Morris blogs at A View From Ham Common, which was named Best New Blog at the 2011 Lib Dem Conference

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