Will Leyland, 31 May 2017
Darwinian Theory, first presented by the legendary British scientist is defined as “a theory of biological evolution developed by Charles Darwin (1809–1882) and others, stating that all species of organisms arise and develop through the natural selection of small, inherited variations that increase the individual's ability to compete, survive, and reproduce.”
Typically, of course, this theory is applied to the animal kingdom and the evolution of species, but if we were to take this logic and apply it to the property market, we would have a fairly convincing explanation for what many might call ‘the housing crisis’. Certainly up to and including 2013 there were reports from The Joseph Rowntree foundation signifying that a large majority of British people saw home ownership as a priority and a right, rather than a privilege.
Here’s the thing, though, it’s really not realistic to try and maintain the level of private home ownership seen in, say, 2003 where the percentage of the population owning their own home either outright or by mortgage was 71%. In 2016 The Guardian reported that this level had dropped down to 64%, the worst rate in 30 years.
The truth of the matter is that through a number of government schemes, through foreign and domestic investment and the relatively rock solid nature of property investment house prices are not going to stop rising. What happened in the mid to late 1990’s is never likely to be repeated. Whilst those in work could reasonably expect to buy a house at between 2 to 5 times their annual salary these days the reality is more in the region of 10 times. Much stricter regulations and the invention of artificially intelligent credit scoring has meant that applicants must now be squeaky clean and able to stump up at the very least 10% of the overall value of the property. 100% mortgages were fairly common in the 80’s but you’d be hard pressed to find them anywhere as we edge towards the 2020’s.
Let’s consider that people in 1995 earned a massive 40% more than comparable employees from 1975, when inflation is adjusted. Wage increases, a booming economy and a chaotically successful housing market meant that the good times were truly rolling for young and middle aged people at this time. Of course that translated into a huge leap in home ownership, not just for those able to afford it, but anybody looking to make a quick buck.
Much like the laws of gravity, economic runaway success can’t last for a lifetime and things came crashing to dust in the 2008 economic global crash which nearly sent us back into the stone ages. Wage growth since then has slipped to a measly 2% since 2007, according to the Office for National Statistics (ONS). House prices are at their highest levels ever and there is simply no sign that this will change.
Given the parameters that we’re working with, you’d be forgiven for wondering what the obsession with home ownership is? The evidence is in and it’s clear, young people can’t afford to buy a home right now. In 1975 you’d be earning the most money, on average, at the age of 29. You’d be at your peak earning potential before you’d hit 30 and this translated into home ownership. Fast forward to 2013 and that age has jumped up to 38. Break that down by gender and men earned the most in 2013 at the age of 50 whilst for females it was 34. It’s not hard to see how the economy has evolved in that time.
So given this information it’s no great stretch of the imagination to conclude that rather than any kind of ‘crisis’, the housing market is simply evolving in a way that we might have seen in fish growing legs to live in a new environment. The laws of evolution mean that you adjust to new environments or you die, and here we see the same.
Attitudes are slowly changing to reflect this, too. Whilst a poll taken in 2016 concluded that 69% of Brits either agreed or strongly agreed that there was a ‘housing crisis’ in the UK, a massive 58% said that the solution was more housing available for rent. Nearly 40% agreed that rents should be capped in line with inflation and 30% wanted better rights for tenants.
Look at the most recently published property news and we’ll find that mortgage applications fell 16% in April alone, whilst My Home Move stated that first time buyers are ‘wildly underestimating’ the cost of buying a home. Not just this, though, Money.co.uk has this week released research which suggests one in 10 first time buyers actually regret purchasing their first home citing reasons such as distance from family, distance from friends, distance from work and a reduction in space as reasons they regret their purchase. Rental property in their home town might approach something like 40% of their after-tax income but consider that affordability restrictions are pretty tight for average earners and the potential pool for first time buyers is reduced to a puddle.
The fact is that, simply, things have changed. The economy, the property market and the job economy simply aren’t what they were and rather than try and breathe in an atmosphere with no oxygen, potential home owners need to evolve with their environment and accept what’s happening around them.
The solution, it would appear, is to boost consumer confidence in the rental market through better regulation. Strides have already been made with plans to reform agent fees as well as talk about rent controls. The biggest improvement so far has been a closer working relationship between landlords and reputable letting agents as tighter regulation has been introduced. Research has shown that landlords working with professional and effective agents promote confidence, a better working relationship and longer tenancies.
It’s time to get with the times.
Will Leyland, 31 May 2017