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BLOG: growing rental sector is damaging the nation’s economy

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16/10/2013
The dramatic expansion of the private rented sector over the last 15 years is one of the biggest failures of public policy in the modern period.
BLOG: growing rental sector is damaging the nation’s economy

The government has an overwhelming policy interest in maximising sustainable rates of owner-occupation.

On the one hand, this is to do with fiscal policy and the sustainability of public spending. Individuals who live in the private rented sector and cannot pay their rent on their own ultimately have to rely on the state to pay their rent in the form of housing benefit.

It looks increasingly likely that as home-ownership polarises, many in ‘generation rent’ will in fact be stuck in the private rented sector throughout their whole life.

The problem comes when they retire: the vast majority of those in retirement cannot afford to cover their rent from their pension. When generation rent retires – and official estimates suggest the number of retirees will have grown from 12-18m by this time – the cost to the Exchequer of paying housing benefit to support their rental costs will be enormous.

Maximising sustainable owner-occupation is also vital to pension policy. The government is currently engaged in a truly massive, far-reaching, once-in-a-generation reform to workplace pension saving. However, for pension policy to be effective, it has to be in people’s interests to save into a pension.

Now consider a typical 30-something renter who is automatically enrolled into their workplace pension scheme, but remains stuck in the private sector for the rest of their life.

Any private pension they build up will yield an income that will be entirely absorbed by their rental costs in retirement, and will displace means tested housing benefit they would have received. Put simply: if you expect to rent your whole life, it almost certainly isn’t in your interest to save into a pension as you will be no better off. If generation rent realise this, the effect on pension policy could be disastrous.

All of this points to the need to get generation rent into sustainable owner-occupation. Rather than costly, risky demand subsidies like Help to Buy, the government would be well-advised to take up some of the recommendations we produced earlier this year for example, to cap the proportion of buy-to-let mortgage lending and restrict the transfer of new build homes into the private rented sector.

James Lloyd is director of the Strategic Society Centre

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