Regarding the so-called UK housing crisis and “Levelling Up”, Prime Minister Johnson doesn’t have a clue.
Exhuming Thatcher’s Right to Buy scheme will be the same disaster it was when the policy was first enacted, the repercussions of which are still endured today. He is clutching at straws to save his skin by lazily reconstructing Conservative ideology into policies which are dangerous, divisive and unworkable. By its very nature, Housing is a long-term, (a very long-term) matter and as such knee-jerk measures and short-term fixes, such as he has presented, will not work.
The UK is an island or, more accurately, a group of islands, nevertheless space is at a premium especially when we need to begin setting aside large areas for agriculture to build food security. Not forgetting to also preserve our beautiful landscapes for the benefit of an exhausted population. In short, we, citizens of the UK, need to rapidly become more efficient and sensible with our land resources. And, we all must have a say in how it is managed.
*All my suggestions would be managed by a new Ministry for Housing with complete responsibility for just that, Housing.
So, what to do? Well, here are a few ideas on Buy to Let and Second-home ownership I have been kicking around for a while:
There are approximately 700,000 second homes in England (Government figures 2019) of which more than 50% are mortgaged. Most are rented out for income and eventual asset appreciation. It is worth pointing out that if a rental property is mortgaged, the landlord is not the actual landlord, the Lender is. Lenders are not subject to the same legal obligations as the immediate landlord.
1/ Disallow borrowing on any property other than the main residence. Second homes and rental properties must be cash purchases. All rental properties must be registered to a UK citizen by name. This will potentially release 300,000 homes and stabilise communities.
2/ Reduce the capital gains surcharge on second homes from 3% to 1% which would be paid directly to Local Councils for community regeneration and social housing.
3/ Disallow corporate ownership of residential (home) rentals. Non-profit charitable Housing Associations, Churches, Community projects etc. would be exempt so long as they are registered as Community Housing with Local Authorities and subject to annual quality checks. This will potentially release a further 50,000 homes.
4/ Uninhabited residential properties which remain empty for 6 months or more would be subject to a Council Tax surcharge of 1/10th of the annualised average market value of the property. 50% of the sum raised would be paid directly to local authorities for use as in no. 5 below. Properties remaining vacant for 12 months or more (without valid reason) would revert to the relevant Local Authority. If an owner is identified (within a 5-year time limit), the market value would be paid less any expenses incurred.
5/ Provide Local Councils with special powers to have the first refusal on purchasing disqualified private rental stock, released by this scheme, on the open market with loans from Central Government Housing Ministry* (after the usual checks and balances).
6/ Abandon Right to Buy and Help to Buy schemes. Ridiculous measures that fuel community disharmony and aggressive price inflation. These measures do not address the basic problems of local availability and inflated values.
7/ Over a 10-year timeframe, on a sliding scale within that period, introduce a maximum household annual rental cost cap of 25% of average household post-tax income for a 2-bedroom property regardless of location. For example, in 2022 the average household income is £31,400 therefore the annual rental cost cap would be £650 per month. All household members must be registered on a rental agreement.
My first thoughts on primary Residential Home Purchase (Longer-term measures):
1/ Over a 10-year timeframe, on a sliding scale within that period, introduce a maximum mortgage borrowing level of 5x average household income (£157,000 in 2022). All borrowers (close and blood relatives i.e. children of any age who pay their parents some rent but not non-familial lodgers) must be registered as beneficial owners of the property at the Land Registry. This will have the effect of suppressing housing values in the medium to long term.
2/ Mortgages can only be secured against the property, not against any individual resident or owner. Mortgage companies would be encouraged to insure themselves against default with no recourse to the owners personally for interest or any costs other than the defaulted mortgage to the limit of the house value. In other words, the mortgage company and the owner share the risk.
3/ Mortgage repayments, including repayment and interest, reduce on a sliding scale towards a 10-year target of no more than 15% of average post-tax annual household income. At 2022 calculus, £400 per month for a 2-bedroom property.
4/ Over a 25-year period, reduce the term of a mortgage from an average of 25 years at present to an absolute maximum of 7 years. In effect, the average value of a domestic home would need to fall to about half the current amount over that period.
Allow me to conclude by saying that I believe a home, whether rented or purchased, must be regarded as every Citizen’s Right. Where commercial markets fail to deliver this Right, Government and Local Authorities must step in.
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© Rod McRiven 2017
Photo by: Various sources (DM me to take down)
Sources: World Economic Forum, Office of National Statistics, London School of Economics and others.