We must build more homes

Features Posted 01/11/22
Expert advice from Harry Shackleton, a partner at strategic communications and business transformation consultancy Inflect Partners

With some forecasts suggesting inflation could reach 15% by the end of the year and interest rates climbing steadily, the era of cheap finance looks to be over – for the time being at least.

The Bank of England is predicting that inflation will come back down to near its target of 2% in two years from now, but even if that proves to be true, that makes for a tricky 24 months ahead.

More than 25% of the UK’s 11 million mortgages will be coming up for renewal in that period, and customers of the most popular product on the market – the five-year fixed rate mortgage – are going to find the world in a different place from when they last sought to finance their loan.

This will mean a further squeeze on household budgets as rates rise and monthly payments go up. For owner/occupiers, mortgage payments account for 18% of total income so increased costs are going to have a real impact, particularly at a time when other cost of living increases are already limiting consumer spending power.

But it is the rental market that will continue to feel the worst effects. The average private renter is already spending 31% of total income on housing. Once you account for taxes, the figures become quite startling – the average tenant in London spends 72% of their net salary on rent, rising to 88% for those under 25 years old. 

With landlords seeking to pass on rising costs and a lack of supply in the market, the upwards pressure on rent will be even more acute. And with more money going on rent and less cash to save for deposits, the demand for rental accommodation will only increase and continue the trend of making home-ownership out of reach for many.

Contrary to popular belief that the UK is a nation of homeowners, we sit 51st in the global rankings with 63% of people owner-occupiers. That is about par with France, ahead of Germany (50%) but significantly behind many other countries such as Spain (76%), Norway (80%) and nowhere near chart-topping Romania (96%).

So, what does this mean, and does it matter that more and more people are property renters rather than owners? Well, in theory, it shouldn’t matter. German tenants spend a similar amount of net income on their rent (29% vs the UK’s 31%) and it does not seem to hold their economy back.

However, when you look to the future, that’s where the differences start to appear. The Germans are building double the number of new houses each year compared to the UK, for a population that is only just over 20% bigger and that is helping to keep house prices under control. German house prices rose 50% between 1996 and 2006, compared to increases of more than 400% in the UK.

This is the problem. Long-term shortages of supply have led to a broken housing market and asset-owners wealth increases exponentially compared to those born just a generation later, compounding deep-rooted inequality and creating divisions in society.

And this is what matters. For the incoming new government, for our struggling public services and for the hopes and aspirations of future generations. It is a long-term and structural problem, but there is a solution. We must build more homes.

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