The following image was grabbed on the late afternoon of Friday, 2nd May, 2014. It’s taken from one of the pages in The Guardian‘s Money section, and it tells you everything you need to know about the housing crisis (which is at its worst in the south east of England).
Ignore the top-ranked story (which, in the original, came illustrated with a thumbnail image of a Sky remote, which I’ve erased); it’s the next two that are relevant.
The first of them tells you half of the story of south east England’s deeply dysfunctional housing market – the part about ‘elite’ property in London being snapped up by the global super-rich, primarily as investment vehicles. It tells you about the very highest end of a much more common malaise: that of thinking of homes as machines for making money, not as places to live.
The second of them tells the other half of the story: of the routine misery experienced by the millions of people (in England & Wales, Scotland, and Northern Ireland) who are in private rented accommodation; the people who have to actually live in the money-making machines as they are making money for their owners. The people who have so little protection they can be evicted from a home they may have lived in for many years on a whim. The people who – as regularly detailed in Renter Girl’s excellent but deeply depressing blog – learn to manage in poorly maintained, badly heated, altogether inadequate homes because to complain is to discover hard and fast just how easy it is for a landlord to get rid of any tenant they like, at any time they like, for any reason they like.
In some other countries tenants are considered to have a right to enjoy their home, such that there is a presumption that tenants should always stay put if they wish it, and landlords have to demonstrate why they should be allowed to remove a sitting tenant against their will. But here the right of the owner to control “their property” is seen as paramount – inalienable, even. Thus are would-be long term residents made transients. Thus do neighbours become strangers. Thus are our communities fractured.
This dysfunction benefits no-one. Here and now, it fails the renters – people who are forced by financial reality to rent when they would rather buy, and who (thanks to the policies of successive governments from the 1980s onwards) now exist in such abundance that for landlords there is always another tenant, one who will accept the rotten window frames or the slow-leaking radiator without complaint. But in the longer term it will also fail many of those who treat homes as money-making machines.
I have no crystal ball, and I cannot tell you when house prices will fall. One moment that will bear watching is when the Bank of England base rate goes up for the first time in years, and all those mortgagors on tracker deals get a sudden reminder of how much difference even a 0.25% increase makes to a monthly repayment. House prices may weather that storm – they may weather a whole sequence of storms – but one thing is certain: the “market adjustment” will come. It may come as a short, sharp shock, or it may come as a slow, gradual deflation, but either way house prices will fall.
When that happens, people who are over-exposed to that market – people who don’t just own their own home, but have put all their investment eggs in that same basket too; people who are treating a rental portfolio as their pension fund – will suffer. And people who have borrowed to bet on the housing market – and that’s all a buy-to-let mortgage is, a borrowed stake gambled on a throw of the dice – will suffer especially. People who own their portfolios will see a paper loss, one that will eventually come good (for just as sure as prices will fall they will recover). But people who have built their portfolios on debt will see their margins squeezed as rates rise faster than rents, and eventually many will default – at precisely the same time as everyone else is defaulting. Their portfolios will be repossessed or forcibly sold at the nadir of the market, meaning their losses will be real; someone else will own “their” investment when the prices start to recover.
Falling house prices will always be difficult for people buying a home with a mortgage. There will always be those who bought just at the wrong moment, and find themselves sitting on negative equity for years. But if the negative equity is in your home then – provided you can keep paying the mortgage – at least, offsetting the financial headaches, you still have a place to live: the place you call home.
People who treat homes as money-making machines won’t have that. All they’ll have is a money-losing machine – a pit that, month after month, eats the nest-egg they were hoping to retire on, and plunges them deeper in debt with each passing day.