A rational approach to the issue of the disparity between supply and demand in housing sectors in several developed countries would be to tackle both excessive demand and insufficient supply. I will focus on Britain in this post, but much of it will apply to other countries.
A major factor in the absurd inflation of house prices is the rise of wealthy landlords buying homes with buy-to-let mortgages. When deposits are 10-20%, those with a good level of capital will easily outbid a twentysomwthing on a modest income. With the buying power of potential landlords increased so effectively, they have made home ownership unaffordable for the people who must now rent from the landlords at inflated rents.
One’s reaction to this very much depends on their perspective. Homes are either commodities or a right. If the tips roofs over people’s heads are a legitimate market for speculation, then it doesn’t matter if costs become unaffordable. If, like me, you see homes as a right, then it is only sensible to correct any imbalances in the market. There is a serious imbalance. When potential tenants are pitted against each other to bid their way into a small home; to pay nearly half their income for something worth so little; and when some prospective tenants feel compelled to submit their CVs to landlords, the situation echoes, to some extent, aspects of medieval serfdom.
Water prices are regulated, as are public transport fares. Rents should be too. Going above and beyond old fashioned rent controls, all private sector lettings would have to be made through a National Lettings Agency, which would work with regulators to guarantee fair rents and a good state of repair in all properties. The agency would also have powers to discourage the leaving of empty properties.
These moves would be accompanied by a government commitment to build one million quality new hones in mixed-tenure developments. Ideally, the state would be the direct owners, so that they could sell homes to selected groups at a profitable, yet below market, rate. A sustained boost to supply at this rate should ease pressure on social housing and existing developments.
Lastly, buy-to-let mortgages must be curtailed. If a landlord is putting more of their capital at stake, they will collectively be less keen on speculation in the housing market. Also, it will limit competition with families, who should have “dibs” in a system that should serve them. Therefore, I propose that deposits on buy-to-let be increased to a statutory minimum of 50%. This represents a level that still doubles their natural spending power, but doesn’t quintuple it as before.
Importantly, many of these methods of creating “people shaped homes” will have to be phased in, so as not to trigger a crash in house prices and wave of mortgage defaults. It may well take 15, or even 20 years to rebalance the system. But if we don’t do it, the all powerful markets will do it for us.
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