Priced Out Of Buying A Home

Recently I watched a video about property prices and how the younger generation are being priced out of the property market altogether.

Heres the video and a transcript of the whole conversation.

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Speaker 1:       On the one hand, millions of young people are priced out of buying a home of their own. On the other, millions more are desperately hoping that house prices remain high, to prevent a slide into negative equity. The writer and journalist Ross Clark, has been looking at all this for his new book, in which he emphasizes how unprecedented today’s housing market is.

Ross:                House like these in Mitcham, South London, enabled a million families to become homeowners in the great building boom between the two wars. When these houses behind me were built in the early 1930s, they cost between 315 pounds and 530 pounds, which in today’s money is between 18,000 and 30,000 pounds. Yet one of these houses, just down the road, is now for sale for 335,000 pounds. That, is after a supposed crash.

House price inflation has made a fortune for some people, but for others it has frustrated their dream of ever owning a home. Yet none of the political parties has any credible scheme for helping frustrated, would-be homeowners. The coalition says it wants to increase house building by loosening the planning system. We certainly need more houses, but that is only part of the solution.

This newly built, two bedroom home is the equivalent of the 1930s homes just down the road. But the difference is, that this property is quite likely to be bought as a speculative investment. We are returning to a Victorian social structure, in which a large class of tenants, rents their homes from a small class of landlords. One solution could be, to place restrictive covenants on most new homes, to say they could only ever be used as owner-occupied properties. People are actually going to live in them. They could not be bought by speculators.

Also, we could reduce the cost of building new homes, by doing as post-war governments did with the New Towns. Compulsory purchasing development land at its current land use value, granting it planning permission, and then selling it onto house builders at much lower prices than they currently have to pay for their land. Taking just enough profit to pay for local infrastructure.

Houses may never be as cheap again, as they were 80 years ago, but there’s no reason why they cannot be a price, which allows young people to do as their great-grandparents did. Make the big step from tenants to homeowners.

Speaker 1:       The writer and journalist Ross Clark is here with us now. Welcome to the program.

Ross:                Hello.

Speaker 1:       Before I come to you, first of all, Michael Fallon, homeownership has fallen for the first time since records began 60 years ago. Britain has the lowest rate of new home construction in almost a century. What are you doing about it?

Michael:          We’re building more homes [inaudible 00:03:17].

Speaker 1:       How many homes have been built since 2010? New homes.

Michael:          I don’t have that exact figure. I think, over 113,000 in the first year, and we have plans for affordable homes of 175,000 by the end of the Parliament. We’ve simplified the planning system. We’re unlocking some of the rules, that have prevented affordable housing being built. These agreements were signed at the top of the boom, when prices were much higher. The affordable homes that were agreed, haven’t actually been built.

Speaker 1:       But …

Michael:          We’ve got a bill going through Parliament, to unlock that now, so you will see more houses being built, from this year onwards.

Speaker 1:       That was one side of it. They’re still not affordable though, for very many young people who just cannot get the deposits to put down, on buying a home. Do you agree with the assessment from Ross Clark, that there is now, this generational gap, between people who own their own homes, and those who will never be able to own their own homes, and will be tenants forever.

Michael:          I think that’s too pessimistic. Some of the money we’ve made available through the Bank of England’s Funding for Lending scheme, is now getting through into the mortgage market. I think you’re going to find a better supply of mortgage finance, coming through now. Now I accept, they’ve got to raise a higher deposit. A higher deposit than perhaps our generation had to raise …

Speaker 1:       [inaudible 00:04:23]

Michael:          … when of course these things were …

Speaker 1:       Ninety five percent, 100 percent … [crosstalk 00:04:25]

Michael:          … made available, 95 percent, 100 percent, self-certified mortgages. Some of those rules have been tightened.

Speaker 1:       What do you do about house prices? I mean, which government, in its right mind, is going to do anything to either freeze house prices where they are, or bring them down any level?

Sadiq:              You can’t control house prices …

Speaker 1:       There are things you can do though.

Sadiq:              You can increase supply. Michael, I hope you’re right, in relation to the figures you give. But, frankly speaking, the experience of my constituents, is very different from yours. I routinely knock doors, where three generations are living in the same household. Person in their late twenties and thirties, living in a bunk bed in mom and dad’s house. No prospect of getting 20, 30, 40, 50,000 pounds deposit required, to buy a property in London. Actually, our obsession, with owner-occupiers is detracted from the fact there aren’t enough properties to rent at affordable rates of rent. Interest rates are low now, so if you can’t afford a mortgage with these low interest rates, and you can’t afford to rent because of high rates of rent from private landlords, what are you going to do?

Speaker 1:       Right. Ross Clark, you’ve heard the two politicians [inaudible 00:05:23]. Do you have any confidence that the situation is going to change dramatically?

Ross:                Michael talks about affordable housing, but affordable housing is a word which really refers to housing either for rent … For shared ownership. It’s usually shared ownership property which gets the name affordable housing. I don’t think people really want to buy half a house. When they set out on their career ladder, they want to buy a whole house, not half a house. Sadiq made the point, “Does home ownership matter?” You’re saying we’ve got this obsession with home ownership.

I think this is an argument, which tends to be advanced by people who already own their own property. It’s not an argument that I’ve ever heard made by people in their twenties, trying to get on the housing ladder. These aren’t benefit claims, these are people in good jobs, well-paid jobs, who 30 years ago would have had absolutely no problem in buying a property at all. [crosstalk 00:06:19]

Michael:          But you have to make it easier …

Speaker 1:       Just one thing about [buy to let 00:06:22], because you raised this issue about ending that sort of speculative market. Which certainly boomed under a [labor’s time 00:06:29], because capital gains tax came down. Do you think that would be an option? Would you back an option that said, “No more …”

Michael:          Yes, the buy to let market is reviving again now, slowly. I mean, obviously people got burnt.

Speaker 1:       I that a good thing?

Michael:          Yes it is a good thing. We do need people to build more properties, particularly in the big cities. That’s important to get investment in there. We’re making it easier, for example, to change use. To convert from commercial premises or offices, and to get that converted into housing. That’s one of the answers, in the very overcrowded and expensive inner city areas.