Forty years ago, Margaret Thatcher realised that once people had found a job they liked, an area they liked and a person they liked, they wanted a bit of stability and independence and no rent to pay when they got older.
The rise of owner-occupation
Back then only about half of people owned their home, with another 30% in social housing and 20% renting from private landlords. In 1980, Thatcher introduced policies to get more people owning their homes, including selling off council houses and increasing access to mortgages. By 1991, nearly 70% of us owned our homes and fewer than one in ten were renting privately.
Getting six million households into home-ownership was quite easy to achieve. When Thatcher came to power, the baby boomers – people born between the end of World War Two and 1960 – were settling down en masse. In 1980, the average house price was just over £20,000, around 3.5 times the average income. It was fairly easy to put down around a year’s salary as a deposit and get a loan for the rest.
The seeds of the crisis
When Thatcher decided home-ownership was the only way to go, councils stopped building houses, causing the rate of housebuilding to fall from around 300,000 in 1971 to 150,000 in 1991. By the turn of the century home-ownership was the norm but now people were competing for fewer new houses and that meant prices started going up.
Image from Shelter's Solutions to the Housing Shortage, 2013
People who’d bought their house in the 1980s saw its value double, and double again. They thought they’d struck gold. They thought a house could now be treated as an investment rather than a place to live.
The rise of speculation
The Labour government thought they’d struck gold too. If house prices could rise faster than inflation, houses would be a great way for people to get wealthier and not rely on the state. They started handing out tax breaks for people to buy homes to rent out. People who had seen their wealth increase by just owning a house, thought “I don’t need to sell my house – I can just buy another one and rent my old house out and I’ll make even more money”. Others were a bit more proactive and built up massive rental empires.
Suddenly, the housing market wasn’t just for people who wanted somewhere to live. People trying to get on the housing ladder had to compete with buy-to-let landlords and other people who just fancied buying a house and watch it rise in value before selling it on. Because the investors already had a lot of money and weren’t parting with savings that they’d spent years scrimping together, they were able to offer more money than young families could, and as a result had added an estimated £14,000 to the price of a typical property by 2007.
Because there was even more demand for houses, prices kept on rising at twice the rate of inflation – which vindicated all those people who suspected that housing was a good investment. People who would have bought have stayed renting – probably from one of the investors who outbid them.
In no other market would we tolerate such massive inflation. If all prices rose by the rate houses have done since 1970, a chicken would now cost £51.18.
Can we fix it?
The only way today’s young adults will be able to buy their own home is if supply starts to match demand, and that involves building more houses. We need to increase rates of housebuilding from 100,000 a year to 300,000.
The trouble is the UK is addicted to rising house prices. Because two thirds of the population still own a home, they have been quite happy to see it increase in value. And because these people vote, politicians have kept them content by feeding them rising house prices and dragging their feet when it comes to building the houses we need – houses that would stop inflation in its tracks. The government’s only solution to high prices is to help people pay them by letting them take out enormous loans at high interest rates – treating the symptom rather than the cause.
Politicians will only change their ways if they think that people will vote for it. There are now 9 million people renting who will vote for a fairer system. The parents of those 9 million now realise that their kids will be poorer than them and don’t want to have to donate money for a deposit just because the system is broken. People who bought before the bubble and were thrilled when their wealth doubled now can’t afford to move to a bigger house because everything else is much more expensive. All these people are waking up to the damage that rising house prices have done to society and we now see more people oppose house price inflation than support it.
We need to stage an intervention. We need to let more people know how this disease has crippled our economy. We need to vote for politicians who will wean Britain off its addiction to rising house prices and create a system where a house is treated as a place to live and not a financial plaything.