UK Housing Crisis (July 2002)

There is a major housing crisis in the UK. Despite a government inflation target of 2.5% pa (HM Treasury), and a retail price index increasing at an annual rate of 1.1% (May 2002), house price inflation currently stands at nearly 20% pa (BBC News July 2002). In June 2002 accountants PricewaterhouseCoopers found that property in London was overvalued by approximately 31%.

According to the Nationwide Summer 2002 House Price Quarterly Review "in order to buy the average UK first-time buyer property with a 5% deposit on a mortgage of 3 times salary an individual would need to earn close to £26,000. The average UK salary is around £24,000. In London an individual would need to earn £49,400 to buy the average first time buyer property, with a 5% deposit and a mortgage of 3 times salary, compared with the average salary of around £30,000." The situation is actually far worse than that described by the Nationwide, as more people earn below the average than above it (i.e. the mean wage exceeds the median and modal values) and first time buyers are more likely to be in the early stages of their careers and thus do not benefit from salary increases due to experience or seniority.

Over the past two decades Britain has become a nation of widespread owner-occupation. Whilst this is in some ways a welcome trend, there remains a significant number of people for whom home ownership is not an option. This group includes the low-paid, those unable to work and an increasing number of temporary / contract / freelance workers. Furthermore, since the implementation of "Right-to-Buy" legislation under the Thatcher administration, Council housing has been in ever shorter supply. Whilst Housing Associations are providing a much needed and valuable service Thatcher's other contribution to British housing, the deregulation of private rental accommodation, has left ever more are being left at the mercy of the now unfettered private rental housing market.

Not only is the government abdicating its responsibility to ensure its citizens have access to one of the most fundamental needs, i.e. shelter, its policies are in fact fuelling the crisis by i) the continued provision of subsidised public housing for the privileged few; ii) the aforementioned Right-to-Buy scheme, which is effectively a redistribution on the basis of circumstance; iii) the massive housing benefit budget (£11,172,000,000 spent on housing benefit in 2000-1; Office for National Statistics) which represents some £1,800 pa per rented household (Office of the Deputy Prime Minister, January 2002). How much better if this budget were directed to providing affordable housing for rental on an at-cost basis.

A recent local newspaper revealed similar properties for sale and for rent. The property for sale was being offered at £145,000; the rental one at £8,100pa. To borrow £145,000 at the current interest rate of, say, 4.75% would result in an annual interest of some £6900. The rental property represents an interest charge of some 5.6%. These figures ignore the capital growth associated with property ownership which has averaged in excess of 6%pa over the past 12 years.

Those trapped in the private rental sector, with its artificially inflated rental charges are in the main excluded from ever being able to aspire to home ownership due to the impossibility of amassing the neccesary deposit payments. The unfortunate private tenant is usually forced to rent on short leases of six months, thus making security and stability impossible. They also receive very little assistance in the not infrequent events that property owner/agent withholds refund of security deposits and/or fails to carry out repairs. Legislation granting rights to those renting in the private sector is frequently flouted by property owners/agents in the knowledge that those forced to rent their accommodation are unlikely to be in a position to bring private prosecutions against them.

With house price growth far exceeding wage inflation the number of people capable of becoming property owners grows fewer by the day. Many key public service workers can no longer afford to live in the areas in which their services are needed. Those that had the good sense and opportunity to purchase property when it was affordable may feel this argument irrelevant to them. However, when the man who empties their bins, fills the shelves in their local supermarket or teaches their children can no longer afford to live close enough to continue his duties they may think differently.

England was described as "the most class-ridden country under the sun" by novelist George Orwell, and despite former Prime Minister John Major's pledge to create a "classless society" inequality continues to widen (BBC News, Poverty under Labour, Steve Coulter; 16 May 2001). The housing crisis is further exacerbating the UK's inherent inequalities. A divided society is a dissatisfied one, and a dissatisfied one is a dangerous one. United Nations research (reported in The Independent, 14 July 2002) reveals that England and Wales now top the Western world's crime league.

In the short-term there needs to be far more effective legislation safeguarding those forced to rent accommodation in the private sector, and there must be strong commitment and mechanisms to ensure such legislation that may exist is rigidly enforced. I would also argue for the removal of the "right to buy" for new Council tenants.

However, these measures alone will not provide not a long-term solution. Although I am no supporter of the state in the role of service provider I am of the opinion that Councils provided an infinitely better service to renters than that currently being offered by the private sector. I do not argue for subsidised rental housing, but I do argue that government policy urgently needs to bring about the creation of very much more housing for this group being available "at cost" (i.e. not for profit), either by Councils or through voluntary / not-for-profit organisations such as Housing Associations.

In the meantime I would offer the following advice to anyone contemplating renting housing in the private sector in the UK:

1. Don't - unless you absolutely have to. Instead seek to rent in the public sector, or from a social landlord such as a Housing Association. Alternatively, buy your own property - even if this means taking out a mortgage. The repayments will be lower than rental charges and you will benefit from capital appreciation.
   
   
2. In the unfortunate event that you have no choice but to rent privately ensure that you rent only from a company registered with a professional body such as ARLA (Association of Residential Letting Agents).
   
   
3. Surprisingly, private tenants do still have some rights under British law. Seek independent advice to ensure you are fully acqauinted with your rights and be prepared to fight to the bitter end to have them upheld.