“Homeownership has collapsed. Good riddance”

Sold! But not to you. Image: Getty.

It’s official: Britain will soon be a nation of renters. Last week, the Institute for Fiscal Studies published new research showing that the proportion of young people who own their own home has more than halved in the last two decades – from 65 per cent in 1995 to 27 per cent today. In London, it hovers at just 20.

Pundits and politicians reacted to the news with a mixture of outrage and anxiety. Labour’s shadow housing secretary John Healey called it a “wake-up” call. The IFS’s own Andrew Hood warned of a “collapse” in Britain’s homeownership. And Housing Minister Dominic Raab swore “to go further and faster” to get Britain back on track. “Through schemes like Help to Buy, we’re helping more people onto the housing ladder and last year saw the highest number of first-time buyers in the UK since 2006,” he said.

But we should not mourn the loss of British homeownership – let alone vow to revive it. Britain’s obsession with homeownership has been toxic for the economy, driving up inequality while driving down productivity. And the obsession with homeownership has been no less toxic for British politics, creating a conspiracy of silence at Westminster to kill any policy that might alienate the marginal homeowning voter.

Instead, we should celebrate Britain’s transition to the rental sector, seizing the opportunity to introduce new reforms that ensure that tenancies are safe, secure, and affordable.

The situation today is, of course, dire. Millennials spend three times as much on their housing as their grandparents, but they get far less in return. High levels of rent drain their monthly income while funding their grandparents’ retirement. It is a direct transfer of wealth from the young to the old.

Expanding homeownership is an appealing – and familiar – solution to this problem. It is also a highly popular solution: the vast majority of renters, when surveyed, say that they would prefer to own a home. Who wouldn’t?

But Raab — and the Conservative Party, more broadly — are prescribing the illness. The drive to homeownership is what got us into this mess, encouraging households to take on mountains of mortgage debt and driving up prices in the process. It is a vicious cycle: house prices go up, making property look like a wise financial investment, so demand begins to rise, and prices go up again. Policies like Help to Buy only stoke the flames of housing demand further.

Fuelling the obsession with homeownership is the raw deal of the private rental sector. Not only are rents high and rising. The PRS is also littered with fees from estate agents and landlords. Meanwhile, tenants live in constant fear of their eviction or removal – which, under Section 21 of the 1988 Housing Act, landlords can initiate even if the tenant has not violated any code or contract.

It doesn’t have to be this way. Most European countries have much stronger protections for their tenants, with longer minimum tenancies and prohibitions against eviction. Many of them also have laws that limit rent inflation to guarantee affordability to their tenants. Renting property can endow tenants with a sense of freedom and flexibility – rather than feeling shackled to a single home and a 30-year mortgage on the only affordable edge of town.

So how do we get to this renters’ heaven?

The fastest route is through the council. Britain’s social tenants enjoy more secure tenancies at more affordable rates. They also report much higher levels of satisfaction with their housing. A large-scale council housing construction scheme could help house Britain’s young and broke.

But reforms are needed to make the PRS more hospitable to low-income tenants. This includes extending minimum tenancies to three years to give renters more stability in their tenure. It would also include regulations for rental inflation, as we have seen already in the German case, whereby rent rises are capped at inflation. And it would eliminate Section 21 completely, giving some peace of mind to renters who fear each day that eviction is around the corner.

The rapid decline in homeownership is both a curse and a blessing. To make the most of it, we should not look back nostalgically to 1995, when the seeds of this crisis were first sown. We should instead move forward, toward the future of affordable, flexible rent. A property-renting dream.

David Adler is a research associate at the campaign group Generation Rent.

Want more of this stuff? Follow CityMetric on Twitter or Facebook.


A new wave of remote workers could bring lasting change to pricey rental markets

There’s a wide world of speculation about the long-lasting changes to real estate caused by the coronavirus. (Valery Hache/AFP via Getty Images)

When the coronavirus spread around the world this spring, government-issued stay-at-home orders essentially forced a global social experiment on remote work.

Perhaps not surprisingly, people who are able to work from home generally like doing so. A recent survey from iOmetrics and Global Workplace Analytics on the work-from-home experience found that 68% of the 2,865 responses said they were “very successful working from home”, 76% want to continue working from home at least one day a week, and 16% don’t want to return to the office at all.

It’s not just employees who’ve gained this appreciation for remote work – several companies are acknowledging benefits from it as well. On 11 June, the workplace chat company Slack joined the growing number of companies that will allow employees to work from home even after the pandemic. “Most employees will have the option to work remotely on a permanent basis if they choose,” Slack said in a public statement, “and we will begin to increasingly hire employees who are permanently remote.”

This type of declaration has been echoing through workspaces since Twitter made its announcement on 12 May, particularly in the tech sector. Since then, companies including Coinbase, Square, Shopify, and Upwork have taken the same steps.

Remote work is much more accessible to white and higher-wage workers in tech, finance, and business services sectors, according to the Economic Policy Institute, and the concentration of these jobs in some major cities has contributed to ballooning housing costs in those markets. Much of the workforce that can work remotely is also more able to afford moving than those on lower incomes working in the hospitality or retail sectors. If they choose not to report back to HQ in San Francisco or New York City, for example, that could potentially have an effect on the white-hot rental and real estate markets in those and other cities.

Data from Zumper, an online apartment rental platform, suggests that some of the priciest rental markets in the US have already started to soften. In June, rent prices for San Francisco’s one- and two-bedroom apartments dropped more than 9% compared to one year before, according to the company’s monthly rent report. The figures were similar in nearby Silicon Valley hotspots of San Jose, Mountain View, Palo Alto.

Six of the 10 highest-rent cities in the US posted year-over-year declines, including New York City, Los Angeles, and Seattle. At the same time, rents increased in some cheaper cities that aren’t far from expensive ones: “In our top markets, while Boston and San Francisco rents were on the decline, Providence and Sacramento prices were both up around 5% last month,” Zumper reports.

In San Francisco, some property owners have begun offering a month or more of free rent to attract new tenants, KQED reports, and an April survey from the San Francisco Apartment Association showed 16% of rental housing providers had residents break a lease or unexpectedly give a 30-day notice to vacate.

It’s still too early to say how much of this movement can be attributed to remote work, layoffs or pay cuts, but some who see this time as an opportunity to move are taking it.

Jay Streets, who owns a two-unit house in San Francisco, says he recently had tenants give notice and move to Kentucky this spring.

“He worked for Google, she worked for another tech company,” Streets says. “When Covid happened, they were on vacation in Palm Springs and they didn’t come back.”

The couple kept the lease on their $4,500 two-bedroom apartment until Google announced its employees would be working from home for the rest of the year, at which point they officially moved out. “They couldn’t justify paying rent on an apartment they didn’t need,” Streets says.

When he re-listed the apartment in May for the same price, the requests poured in. “Overwhelmingly, everyone that came to look at it were all in the situation where they were now working from home,” he says. “They were all in one-bedrooms and they all wanted an extra bedroom because they were all working from home.”

In early June, Yessika Patapoff and her husband moved from San Francisco’s Lower Haight neighbourhood to Tiburon, a charming town north of the city. Patapoff is an attorney who’s been unemployed since before Covid-19 hit, and her husband is working from home. She says her husband’s employer has been flexible about working from home, but it is not currently a permanent situation. While they’re paying a similar price for housing, they now have more space, and no plans to move back.

“My husband and I were already growing tired of the city before Covid,” Patapoff says.

Similar stories emerged in the UK, where real estate markets almost completely stopped for 50 days during lockdown, causing a rush of demand when it reopened. “Enquiry activity has been extraordinary,” Damian Gray, head of Knight Frank’s Oxford office told World Property Journal. “I've never been contacted by so many people that want to live outside London."

Several estate agencies in London have reported a rush for properties since the market opened back up, particularly for more spacious properties with outdoor space. However, Mansion Global noted this is likely due to pent up demand from 50 days of almost complete real estate shutdown, so it’s hard to tell whether that trend will continue.

There’s a wide world of speculation about the long-lasting changes to real estate caused by the coronavirus, but many industry experts say there will indeed be change.

In May, The New York Times reported that three of New York City’s largest commercial tenants — Barclays, JP Morgan Chase and Morgan Stanley — have hinted that many of their employees likely won’t be returning to the office at the level they were pre-Covid.

Until workers are able to safely return to offices, it’s impossible to tell exactly how much office space will stay vacant post-pandemic. On one hand, businesses could require more space to account for physical distancing; on the other hand, they could embrace remote working permanently, or find some middle ground that brings fewer people into the office on a daily basis.

“It’s tough to say anything to the office market because most people are not back working in their office yet,” says Robert Knakal, chairman of JLL Capital Markets. “There will be changes in the office market and there will likely be changes in the residential market as well in terms of how buildings are maintained, constructed, [and] designed.”

Those who do return to the office may find a reversal of recent design trends that favoured open, airy layouts with desks clustered tightly together. “The space per employee likely to go up would counterbalance the folks who are no longer coming into the office,” Knakal says.

There has been some discussion of using newly vacant office space for residential needs, and while that’s appealing to housing advocates in cities that sorely need more housing, Bill Rudin, CEO of Rudin Management Company, recently told Spectrum News that the conversion process may be too difficult to be practical.

"I don’t know the amount of buildings out there that could be adapted," he said. "It’s very complicated and expensive.

While there’s been tumult in San Francisco’s rental scene, housing developers appear to still be moving forward with their plans, says Dan Sider, director of executive programs at the SF Planning Department.

“Despite the doom and gloom that we all read about daily, our office continues to see interest from the development community – particularly larger, more established developers – in both moving ahead with existing applications and in submitting new applications for large projects,” he says.

How demand for those projects might change and what it might do to improve affordable housing is still unknown, though “demand will recover,” Sider predicts.

Johanna Flashman is a freelance writer based in Oakland, California.