Allow Landlords to evict tenants where there are 14 days rent arrears14:34 PM, 1st October 2020
About 4 weeks ago 97
The Institute for Fiscal Studies issued the Briefing Note “The decline of homeownership among young adults” on 16 February.
It contained findings, but did not make any recommendations. The key findings were:
The BBC were primed and ready. They had prepared a film about a 30 year old man in Brighton who cannot afford to buy because, he said, “there’s not a chance to be able to get a deposit”. The film was shown on the BBC News Channel several times that day, followed by interviews with various people. The film also stated that “councils complain that developers are sitting on planning permissions for more than 400,000 homes which haven’t been built, and that’s aggravating the shortage”.
The item was introduced with “New figures reveal a dramatic fall in the number of young people buying their own homes over the last 20 years. The Institute for Fiscal Studies found that just a quarter of those under the age of 34 earning average incomes were able to buy, and that compares with two-thirds in 1996.”
In his interview Andrew Hood, one of the report’s authors, said “There are lots of reasons that people have put forward why house prices have risen so quickly over the past 20 years but the basic reason is that housing supply has not kept pace with demand.”
He went on to point out that “Rents, broadly speaking, haven’t risen very quickly over the last 20 years.”
He said “Outside of London and the south east, house prices have stopped growing over the last 10 years relative to the incomes of young adults.”
He did not mention a conclusion from a report he had co-written in 2016 about people born in the early 1980s: “They are the first post-war cohort not to at least start working-age life with higher incomes than their predecessors had at the same age. This reflects the fact that the Great Recession hit the pay and employment of young adults the hardest.” .
Henry Gregg from the National Housing Federation (for housing associations) offered a counterpoint to Andrew Hood’s measured approach and spouted propaganda about the PRS. He said “house prices and rent prices are spiraling out of control (sic) of young people”, and “renting in this country is not very stable, you’ve got short-term tenancies, and actually people can be kicked out quite easily.”
Neither of these interviewees mentioned that more young adults spend three or more years at university instead of earning a living than 20 years ago, while the degrees they emerge with often do not lift them out of middle incomes as much as they used to.
The report mentioned immigration as one reason for the reduction in home-ownership
“Those young adults not born in the UK are significantly less likely to be homeowners (around 20 percentage points less likely in 2016), and the share of young adults not born in the UK has risen significantly over the past twenty years (from around 10% in 1996 to around 25% today).”
However, the report did not mention the effect of the credit crunch, even though it highlighted a sharp drop in ownership around that time.: “For the remainder of this briefing note, we focus on the falls in home ownership for young adults – defined as those aged 25–34. Figure 3 shows that, using this definition, the home ownership rate of young adults fell from 55% to 34% between 1996 and 2016, with the sharpest fall between 2005 and 2010 (when the rate fell by over 10 percentage points).”
In the middle of the latter period came the credit crunch. In 2007 Northern Rock, which had been providing 125% loans, found it could not raise funds, and Robert Peston broke the news on the BBC. Instead of letting the Bank of England quietly act as the lender of last resort, Peston caused a run on the Northern Rock, shattering confidence in banks, which stopped lending to each other and reduced lending to the public. Loans to first time buyers fell by 47% between 2007 and 2008. https://visual.ons.gov.uk/living-with-parents/
The graph there shows that between 2002 and 2003, loans to first time buyers had already fallen by 31%.
People who were 34 in 2016 were 25 in 2007. That means that everyone in the range 25 to 34 in 2016 was affected by the credit crunch and the consequent greater difficulty in obtaining a mortgage.
Incredibly, this obvious fact was ignored by the report’s authors.
Instead they tried to work out which income group had suffered the most. They divided the after-tax family incomes in Great Britain into 5 equally-sized quintiles “according to the total net (after-tax-and-benefit) income of their family (their own income plus that of any cohabiting partner)”. The IFS report does not include figures for Northern Ireland.
They deducted the 2016 percentages of home ownership from those of 1996 and said that the biggest reduction came in the middle quintile.
“Figure 5 also shows that, in absolute terms, the smallest fall in home ownership has been at the bottom of the distribution – in the bottom quintile (those with net family income below £15,100 in 2015–16) the home ownership rate fell by 11 percentage points (from 19% to 8%), compared with the 38 percentage point fall in the middle quintile.”
Why was the reduction in the middle quintile bigger than in the quintiles with the two lowest incomes?
The authors might have been able to explain this paradox if only they had continued their train of thought: “On the other hand, the smallest proportional fall in home ownership has been among the top income quintile (those with net family income above £41,100 in 2015–16), with the home ownership rate in that group declining from 86% in 1995–96 to 64% in 2015–16.” But this 22% drop in the top quintile is bigger than the drop in the two lowest quintiles.
If we look at the proportional reduction in ownership of all quintiles over the 20 years then the picture looks a bit different, and more comprehensible.
The proportional reductions in the three lowest quintiles are almost identical. That in the fourth is the same as the overall average. The one in the top quintile is the lowest.
Thus the proportion has dropped by around 58% in the lowest three quintiles since 1996, and between 25% and 38% of the rest.
I wonder why. The Bank of England Base rate was 0.5% in 2016, but had been about 12 times as big in 1996. Could the credit crunch have had anything to do with the reduction in home ownership?
Ray Boulger said in his interview that the real problem is the deposit. (And that is what the 30 year old in the film said.). Ray said that after the credit crunch lenders stopped offering 100% mortgages.
He also said that if parents provide the deposit their adult children can buy. If not and they live at home they can save a deposit in about 4 years. If they are renting they can’t.
The IFS report itself states “Figure 11 shows how the home ownership rate of young adults (aged 25–34) varies according to the occupational class of their parents. As would be expected, home ownership is higher for young adults who come from a more advantaged background.”
Ian Mulheirn, Director of Consulting at Oxford Economics has debunked the IFS report. His conclusion was that the major cause of the drop was a first-time buyer mortgage drought.
He wrote “had lending to FTBs continued at its 2003–07 average from 2008, there would have been around one million more home owners by 2013, and the national home ownership rate would have remained around its 2007 level.”
The IFS report has no recommendations so I wonder what its purpose was. By focusing on the 25 to 34 year old cohort as being the worst to suffer it reinforces Generation Rent’s feeling of victimisation. By not explaining that the cause was a change in lending policy it leaves young people blaming landlords for the fact that they can’t buy a property. Whereas it is landlords who provide them with the accommodation that enables them to live independent lives away from their parents.
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