It’s clear that the UK’s housing market remains in deep distress. With leas skyrocketing and home mortgage rates striking 6 percent, both renters and house owners are suffering.
As Brits feel the housing pinch, how does the UK’s housing crisis compare to the remainder of the world? Five specialists weigh in.
Are we truly a country consumed with home ownership?
The UK has long had a track record for being a nation concentrated on ownership instead of leasing. But the reality is a little bit more complicated.
Dr Nikodem Szumilo, Associate Professor in Economics and Finance of the Built Environment at UCL’s Bartlett School of Sustainable Construction, said that the UK is “obsessed with home ownership in the sense that it is important for many people to own their house.”
“There is a cultural aspect to it, but it has also been a political choice to promote home ownership for decades, or even centuries,” he said.
Dr Szumilo said this originated from an understanding that “homeowners are better citizens – more likely to vote and engage with the community, better neighbours as they take better care of the houses, or better workers as its more damaging to drop out of the workforce when one has a mortgage. There are countries with higher ownership rates but in the UK homeownership is definitely important to many people.”
Professor Christian Hilber of the London School of Economics said that British individuals “by and large prefer owning”.
The homeownership rate increased after WWII “partly due to rising incomes and the deregulation of credit markets and in part because of policy”, with Margaret Thatcher’s 1980 Right to Buy policy causing a significant boost in homeownership achievement.
But the UK’s home ownership rate has in fact dropped from 70 percent in 2004 to 64 percent in recent years, putting us listed below the European average.
In Britain, around 36 percent of individuals lease: 19 percent independently and 16 percent in social housing. According to these 2021 figures, France is extremely comparable with around 35 percent in leased accommodation, however Germany is greater at 50 percent.
“Why the homeownership rate has been falling since 2003 is not entirely clear, but the fact that it is simply no longer affordable to many young and lower income households, particularly in Greater London and the South East has probably something to do with it,” said Professor Hilbert. “Only recently this trend came to a halt and possibly reversed.”
Now, the UK’s home ownership rate is “about mid-range, similar to the US. Higher than in Germany or Switzerland, but lower than in Southern European countries, or say in Romania or China, where owner-occupied housing was allocated to residents after the fall of communism and some domestic reforms, respectively.”
How do our house costs compare?
Our house costs have actually been increasing at a greater rate than a lot of other nations.
“House prices have risen very strongly in real terms over the past 50 years,” Professor Hilber said.
“Only New Zealand had a stronger increase amongst OECD countries during this time period. The strong increase in prices is in large part driven by restrictive planning systems in both countries that limit house building, in conjunction with growing demand. Given this strong historic increase in prices, younger households have become rather desperate to get on the owner-occupied housing ladder as well. In part this is because they perceive it as a good investment, in part it may be because homeownership provides a hedge against rising rents, and in part it may be because young renters realise that the dream of owning may become ever more unrealistic as time passes.”
Luke Murphy, associate director of the Institute for Public Policy Research (IPPR), said that while the UK was not extraordinary in regards to levels of home ownership, its technique to attaining home ownership was various.
“What we’ve sought to do increasingly is subsidise demand with things like help to buy and stamp duty measures, while not building enough homes of any kind for a generation,” he said.
“This has created an expectation around increases in value and ownership has become too associated with increasing value and not what most people want out of a home, which is the security, stability and control it offers you. It’s not the focus on home ownership itself, it’s what it’s become in the UK.”
How does the UK rental market compare to other nations?
In Vienna, the majority of the city’s population live in high-quality subsidised housing. The system costs the city about £500m a year, however this is moneyed mainly by a 1 percent levy on homeowners’ revenues, and parts have actually been copied in other cities consisting of Barcelona. But critics have actually indicated its weak housing market in general, with Bloomberg discovering it was the weakest housing market amongst significant European capitals simply last month.
Berlin notoriously introduced radical rent caps which saw rent in 90 per cent of flats frozen for five years at their June 2019 rates, a relocation developed to offer relief for renters while brand-new housing was developed amidst fast lease boosts. The law even enabled renters to sue their property managers to lower the lease.
But some property managers presented “shadow rents” – greater rates that renters would need to pay if the lease cap was discovered to be unconstitutional throughout a court difficulty – into their agreements, and the supply of homes in Berlin dropped. The policy was reversed by Germany’s constitutional court in 2021.
New York City has rent-controlled apartments with a ‘Maximum Base Rent’ system, which implies the housing department chooses an optimum and minimum lease for each private apartment or condo. This figure is changed every 2 years.
According to IPPR’s Mr Murphy, the UK is “an outlier on private renting, in that we have one of the most liberalised private renting systems certainly in Europe.”
“There’s legislation going through Parliament to change this at the moment, but we actually provide very little security and control to people who live in the private rented sector; things like no-fault evictions, the ability to be evicted after six months, less ability to decorate your home or have a pet,” he said. “The Government has said it’s committed to changing that, but that’s taken quite a number of years to get there. And understandably, that means more people want to focus on home ownership.”
Professor Whitehead kept in mind that Scandinavian nations which have big rental sectors, with Denmark having “a much bigger affordable housing sector than ours.”
What’s incorrect with our rental sector?
Compared to other nations, the UK’s personal rental sector is “bad for renters”, according to Dr Szumilo.
“Regulations such as “no-fault” expulsions, unreasonable recommendation procedure or absence of security when the property manager is not caring for the property make it truly difficult to be a tenant in the UK. Other markets, specifically Germany or Switzerland have policies that favour the tenant, so the home ownership rate is lower,” he said.
“The UK rental market is very fragmented – we have a large number of landlords with few properties. This is not how things work in most other countries that have large corporate landlords. It’s changing in the UK but very slowly.
“As with many things in the UK, the rental market is more bureaucratic than elsewhere and favours the landlord wherever possible. This means that there are often hidden fees and charges for renters. It’s also not cheap for landlords. The government no longer allows mortgage interest to be treated as an expense for tax purposes. This makes it a lot more expensive to be a landlord, especially with high interest rates.”
So, are things even worse in the UK than in the remainder of the world?
Not totally. Professor Christine Whitehead, Emeritus Professor of Housing Economics at the London School of Economics and Political Science (LSE), said that “it would be silly to say we massively standing out as totally incompetent, because we’re not” however that the “current situation is particularly bad for our style of housing system.”
“Moving from quantitative easing to a more normal system has had predictable outcomes is very costly and is going to be very harmful for a lot of people,” she said.
“What’s happening in a lot of countries is that we are getting older, and the people who bought in the 1970s and 80s have done very well out of their housing. Covid-19 meant that those are also the people who got furloughed by Governments, so instead of there being a relationship between GDP and house prices, what we got was a relationship between personal incomes particularly among those people whose incomes – because they were staying at home – and assets were going up. They have gone into the market and helped increase house prices.”
“All countries are very different in the way that they operate. Quite a lot of countries have some form of rent stabilisation – not rent control usually – and that is certainly something that one would very much like to see. But it’s not that easy to say: there are very few great examples elsewhere. Certainly, at the moment we’re being hit with all of the things that are wrong with our system.”
What can we gain from other nations?
Building houses and improving tenants’ rights
The IPPR’s Mr Murphy recommended that the UK focuses “too much on pumping up demand and not enough on building homes” – which we might take a leaf out of other nations’ books to move this.
“Unsurprisingly, if you funnel a lot of Government support into demand and don’t build enough homes, you’re going to create a situation where houses are more expensive and harder to buy,” he said. “There are definitely other countries where it works better. We’re not completely exceptional, or the only country facing challenges, but we do have an unusually unaffordable housing market particularly for people to buy their own homes.”
“We’ve argued for much longer tenancies to give more stability, ending section 21 and removing some of the grounds for evictions, limiting rent increases during tenancy and giving additional rights to tenants so that they have more control over their homes and can freely decorate their homes and have pets, as well as putting requirements on landlords to upgrade their properties and maintain decent standards. We also need to build more homes of all tenures, reforming the planning system and land market, and for the Government to invest in genuinely affordable homes to rent.”
Reducing administration – and reassessing the greenbelt
Professor Paul Cheshire, Emeritus Professor of Economic Geography at the LSE, said that the UK required to follow other nations in minimizing unneeded administration and must think about reducing some limitations on greenbelt advancement.
“We have rigid prohibitions on building on green belt land close to cities where people want to live. This means people are jumping across the green belt to get affordable housing, a two-hour commute away from London, so it doesn’t make sense for cities and has a negative effect on energy consumption because everyone has to drive to the station so they rely on cars more,” he said.
“In addition to it freezing space, it’s discretionary. In Germany, Switzerland and France you have a rules-based system, and once it’s democratically agreed you get on and do it. In Britain, every single significant change is an endless political argument which is why it costs ten times as much to build a kilometre of high-speed rail in the UK than it does in France. This pushes up the price of land which means building more social housing – which is desirable – is financially impossible because of the cost of land, because we’re made land so scarce.”
Will we ever move to a more European design?
Probably not, believes Professor Hilber.
“Better, not stricter, regulation of the rental market and the emerging Build to Rent-boom will hopefully improve the attractiveness of the rental market in the medium term,” he said.
“But I cannot imagine that the UK becomes like Germany or Switzerland. In Switzerland less than 40 per cent of households own and it is quite common that people live happily in the same rental unit for decades. This is unlikely to happen in the UK – ownership may indeed be too entrenched in the society by now.”
