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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For the first time in my life I have a sworn enemy – and I don’t even know her name

The cyclist, though, was enraged. “THAT’S CLEVER, ISN’T IT?” she yelled. “WALKING IN THE ROAD!”

Last month, I made an enemy. I do not say this lightly, and I certainly don’t say it with pride, as a more aggressive male might. Throughout my life I have avoided confrontation with a scrupulousness that an unkind observer would call out-and-out cowardice. A waiter could bring the wrong order, cold and crawling with maggots, and in response to “How is everything?” I’d still manage a grin and a “lovely, thanks”.

On the Underground, I’m so wary of being a bad citizen that I often give up my seat to people who aren’t pregnant, aren’t significantly older than me, and in some cases are far better equipped to stand than I am. If there’s one thing I am not, it’s any sort of provocateur. And yet now this: a feud.

And I don’t even know my enemy’s name.

She was on a bike when I accidentally entered her life. I was pushing a buggy and I wandered – rashly, in her view – into her path. There’s little doubt that I was to blame: walking on the road while in charge of a minor is not something encouraged by the Highway Code. In my defence, it was a quiet, suburban street; the cyclist was the only vehicle of any kind; and I was half a street’s length away from physically colliding with her. It was the misjudgment of a sleep-deprived parent rather than an act of malice.

The cyclist, though, was enraged. “THAT’S CLEVER, ISN’T IT?” she yelled. “WALKING IN THE ROAD!”

I was stung by what someone on The Apprentice might refer to as her negative feedback, and walked on with a redoubled sense of the parental inadequacy that is my default state even at the best of times.

A sad little incident, but a one-off, you would think. Only a week later, though, I was walking in a different part of town, this time without the toddler and engrossed in my phone. Again, I accept my culpability in crossing the road without paying due attention; again, I have to point out that it was only a “close shave” in the sense that meteorites are sometimes reported to have “narrowly missed crashing into the Earth” by 50,000 miles. It might have merited, at worst, a reproving ting of the bell. Instead came a familiar voice. “IT’S YOU AGAIN!” she yelled, wrathfully.

This time the shock brought a retort out of me, probably the harshest thing I have ever shouted at a stranger: “WHY ARE YOU SO UNPLEASANT?”

None of this is X-rated stuff, but it adds up to what I can only call a vendetta – something I never expected to pick up on the way to Waitrose. So I am writing this, as much as anything, in the spirit of rapprochement. I really believe that our third meeting, whenever it comes, can be a much happier affair. People can change. Who knows: maybe I’ll even be walking on the pavement

Mark Watson is a stand-up comedian and novelist. His most recent book, Crap at the Environment, follows his own efforts to halve his carbon footprint over one year.

This article first appeared in the 20 October 2016 issue of the New Statesman, Brothers in blood