BLOG: Can society afford the rental boom?
Consider this: when today’s twenty-somethings reach retirement around 2060, there will be around 18m pensioners in the UK – a third more than today.
If, as forecast in some quarters, many twenty-somethings fail to get on the housing ladder and owner-occupation rates across the population drift down to 50%, the future cost to the taxpayer of paying housing benefit to pensioners trapped in the private rented sector will be extortionate.
Maximising sustainable owner-occupation rates across the population should be a central objective of government policy.
Why? Put to one side the fact home-ownership is something so many households aspire to, and the evidence on the positive well-being and ‘social capital’ effects of living in owner-occupied housing.
If you don’t ever expect to get on the property ladder, you probably won’t ever save into a pension. Rather than the images of cruises and beach walks that insurance companies use to illustrate a retirement with a good pension, all the money you put into a pension will go on paying rent to your landlord.
Help from the state with housing costs in retirement is ‘means tested’ and will always be so. So if you save into a pension and then have rent to pay as a pensioner, the money you saved will reduce the amount of support you get from the state for your rental costs. You will be worse off overall by saving into a pension.
This is why despite the government currently rolling out a massive programme of reform to workplace pension saving to encourage people to save, recent data on the exploding private rented sector suggest that UK pension policy could be about to hit a wall. This will also have potentially catastrophic consequences for the public finances.
The conclusion for policymakers is very simple: the long-term fiscal sustainability of the country relies on the government maximising sustainable rates of owner-occupation. As a society, and as taxpayers, we cannot afford anything else.
The usual response to this is to build more homes. But building more homes will never be enough. Given the dramatic disparity in the financial position of landlords and tenants, trends over the last decade toward growing numbers of private landlords and growing numbers of households living in the private rented sector will continue inexorably unless the government adopts radical measures.
In particular, expanding the housing stock will never be enough if the financial power of landlords enables them to ultimately transfer this stock into the private rented sector.
So, we floated some additional ideas to clip the further growth of landlords and the private rented sector:
– A buy-to-let lending cap on the proportion of mortgage lending by banks that can be distributed buy-to-let mortgages
– A newbuild buy-to-let mortgage moratorium, preventing the purchase of new-build homes with buy-to-let mortgages
– A three-year rule, such that short-term tenancy agreements cannot be drawn up in relation to homes that are less than three years old, to ensure new-build homes become owner-occupied.
Of course, the great advantage of these ideas is that as households move from the private rented sector into owner-occupation, they release stock in the rented sector, bringing down rental costs and easing pressure.
Some will see these ideas as unwarranted interventions in the functioning of the market economy even though, as we all know, the underlying market in housing supply in the UK cannot be called a market at all.
How long is it tenable for government policy to allow the 2% of the population who are private landlords to crowd out a growing proportion of the population from owning a home?
Like any good industry, the mortgage industry could absorb and adjust to such measures, and refocus on its important and valuable social role of helping the majority of households gain access to home ownership. The taxpayer cannot afford anything else.
James Lloyd is the director of Strategic Society Centre.