Redfern review into the decline of Homeownership

by Property 118

13:51 PM, 16th November 2016
About 2 years ago

Redfern review into the decline of Homeownership

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Redfern review into the decline of Homeownership

Published today, the Redfern Review is supposed to be an independent report, led by Pete Redfern, Chief Executive of Taylor Wimpey,  commissioned by Labour Shadow Secretary of State for Housing, John Healey MP.Taylor wimpey

The review into home ownership reveals that the financial squeeze on young people is at the heart of the decline in the number of home owners and calls for a long term, cross-party approach to housing issues.

The Review indicates the primary causes of the decline in home ownership

The Review’s analysis shows that the primary causes of the 6.2 percentage point fall in home ownership between 2002 and 2014 are as follows:

  • The biggest contribution to the fall in the home ownership rate after the financial crisis came from the higher cost of and restrictions on mortgage lending for first time buyers – namely tougher first time buyer credit constraints. This is estimated to have cut 3.8 percentage points off the UK home ownership rate from 2002 to the end of 2014.
  • The biggest contributor to the fall in the home ownership rate before the financial crisis was the rapid increase in house prices. Between 2002 and 2014, higher real house prices are estimated to have reduced the private home ownership rate by 2.6 percentage points.
  • The third major driver of the fall has been the decline in the incomes of younger people, aged 28-40, relative to people aged 40-65, i.e. the income of first time buyers relative to that of non-first time buyers. This younger age group’s average income fell from approximate parity with the over-40s to some 10% below in the wake of the financial crisis. This reduced the relative buying power of would-be first time buyers, pulling down the home ownership rate over the period by around 1.4 percentage points.

The Review also analyses the causes of the house price boom of 1996-2007, and the maintenance of prices at historically high levels in the period since the recession of 2008-2010. The main trends are macro-economic, with rising household incomes and employment and falling interest rates being the main drivers.

In common with other studies, we find that the impact of new supply on house prices in the short term is very small. For example, even increasing home production to around 300,000 for one year would reduce prices by only c.0.6%, given recent rates of household formation. New household formation and supply have been broadly in balance over the last 20 years and therefore the significant increases in house prices over that period have not been driven primarily by supply constraints.

We strongly encourage the current and future Governments to look long term at home ownership issues and to adopt a principle-led strategy against which individual, short term actions can be assessed.

In the Reports Conclusions it includes:

  • Far more could and should be done to provide a healthy and stable renting environment, providing a better opportunity for young people to save and a better set of conditions for longer term renters
  • Rental conditions for tenants should be improved whilst avoiding unnecessarily increasing landlords’ costs

Please read the full review HERE so that you can gauge an accurate weighting of the reports assumptions and conclusions for yourself



Comments

Neil Patterson

13:59 PM, 16th November 2016
About 2 years ago

If you read the full report it has some very relevant points.

However, I think it completely underplays the fact that the housing market is one of the oldest and most mature markets driven mainly by the basic economic forces of supply and demand.

Therefore you can tinker with effective Demand by giving more people ability to purchase, but it is the massive failure of Supply to keep up with demand for the last 20-30 years that is the driver of Price.

Supply Supply Supply is the balance you need ! IMHO

BTL INVESTOR SCOTLAND

14:04 PM, 16th November 2016
About 2 years ago

The future of housing in the UK is a serious issue and the Government needs to take action and encourage investment in all tenures. Earlier this year Property118 called for a ROYAL COMMISSION to be set up to investigate how housing supply could be increased. The time has come for the commission to be put in place.

Dr Rosalind Beck

16:57 PM, 16th November 2016
About 2 years ago

In terms of the statement:

'Rental conditions for tenants should be improved whilst avoiding unnecessarily increasing landlords’ costs'

it would have been good if they had added that Section 24 is the worst example of Government interfering and massively hiking landlords' costs and had called for its repeal before it kicks in. I know that at least one member of the panel does not agree that landlords should be taxed on finance costs, so I am surprised this wasn't mentioned (I must admit I haven't read the report yet).

Gary Dully

17:40 PM, 16th November 2016
About 2 years ago

Section 24 is BAD, really, really bad and it's about to cause carnage, but even worse will be the effect of interest rate rises.
If Mr Trump and Hammond spends like his wife on shoes or on infrastructure, it will stoke inflation and the BOE will sooner or later bump up the rates to throttle it.

The housing market is cyclical, but so are borrowing rates and Section 24 will bankrupt BTL borrowers a lot faster than HMRC can write down names and addresses on tax return forms.

Just to add to our plight.....

There is a feature on the Victoria Derbyshire show tomorrow morning on BBC2, where some idiot is proposing rent controls!

You just couldn't make this stuff up, we must have injected some jiff into a vein and are having a bad trip!

Where is the RLA?
What the hell are they trying to do to the private rental market?

Why not just throw us all in jail for crimes against humanity.

We are now going to pay a price for having no voice, but that's a different topic.

H B

20:45 PM, 16th November 2016
About 2 years ago

I was just listening to Henry Pryor on the radio and he rubbished the report.

Dr Rosalind Beck

22:03 PM, 16th November 2016
About 2 years ago

The stats are wrong in the Redfern report press release.
It states that there has been a 6.2% reduction in home ownership rates and then says:
1. tougher FTB credit constraints caused 3.8% of the 6.2%
2. the rise in real house prices has caused 2.6% of the 6.2%
3. Falling FTB incomes has caused 1.4% of the 6.2%

I make that 7.8% of the 6.2%!! and that's not accounting for the fact that there must be a few more factors influencing the 6.2% reduction.

I shall be writing to Redfern and John Healey now.

Richard Peeters

11:55 AM, 17th November 2016
About 2 years ago

Section 6.4 seems to have yet another basic calculation error:
"Using this formula, the home ownership model can be interpreted as follows:
 a ten percent rise in real house prices lowers home ownership by 1.3 percent. This means that if home ownership is at 70 percent a ten percent price rise will lower home ownership by 1.3 percent×70 percent=0.91 percentage points, cutting just under half a percentage point from the home ownership rate"

So is it 0.91% or is it "just under 0.5%"? One is about twice as much as the other!

Richard Peeters

11:59 AM, 17th November 2016
About 2 years ago

The Taylor Wimpey report seems to be focused on defending the house building industry against their land banking / non-building strategies (= building more houses faster won't help with rents or with home ownership rates).

There seems to be nothing at all in this report to blame private landlords for the low homeownership rates, which is why Osborne claimed he was punishing landlords with S24..

Jon Pipllman

16:14 PM, 17th November 2016
About 2 years ago

Anyone that has waded through Redfern might also like

Profits before Volume? Major Housebuilders and the crisis of housing supply

It is by Tom Archer under supervision of Prof. Ian Cole at Sheffield Hallam University

http://www4.shu.ac.uk/research/cresr/sites/shu.ac.uk/files/profits-before-volume-housebuilders-crisis-housing-supply.pdf

"On the basis of the evidence in this report about the structure, organisation and financial performance of the major housebuilders, the private sector alone will simply continue to fail to provide what is needed, and the gap between housing demand and supply will continue to grow larger."


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