The satirical news site The Daily Mash recently ran the headline ‘Tories to Build Thousands of Affordable Second Homes’. The article falls into the category ‘things that are funny because they are true’.
According to Aldermore, at present 1 in 5 UK homes is owned by a landlord. On current projections, they expect the figure to be 1 in 3 by 2032. This in itself should be arresting. Soon, an entire third of UK houses will not belong to the people who live in them, nor be a part of government housing stock designed to protect the most vulnerable, but will instead be vehicles of profit for third parties. This is no accident nor an unavoidable outcome. It is a result of an economic situation that government policy has happily exacerbated.
The underlying mechanism is that of an elegantly simple vicious cycle. First, low affordability of houses due to high market prices forces many people to rent. This drives rental demand up. Higher demand means higher rents can be charged. This increases the attractiveness of buy-to-let purchases for those who have the wealth to do so. An increased level of buy-to-let investment leads to an increase in house prices. This leads to even lower affordability, which leads to more people renting… Thus, the snake eats its own tail.
And the snake is presently gorging itself at an especially spectacular rate, due to historically unprecedented low rates of interest. This is because low interest rates make buy-to-let purchases an overwhelmingly desirable investment: they offer far greater yields than any savings product, whilst being much less volatile than the stock market. If you have money, and want more, then buy-to-let is a no-brainer.
What could break the cycle? Well, not the government’s help-to-buy scheme, which simply helps keep house prices inflated. Ditto the Conservative’s cynical pre-election pledge to privatize housing association stock. What would work would be a significant rise in interest rates. But that won’t happen, in part precisely because there are now so many buy-to-let landlords that a significant rise in interest rates would cause a collapse in their ability to repay mortgages. This would force them to sell their properties, meaning the housing market would be glutted and quickly tank. In turn so would the whole economy, because rising house prices are pretty much the only thing keeping the current ‘recovery’ afloat. (In fairness, interest rates are probably stuck at rock bottom anyway, due to the wider global economy being firmly up the creek.
An alternative would be to build many hundreds of thousands of genuinely affordable first homes, with controls put in place as to who can buy them, alongside a simultaneous increase in the stock of social housing. This would solve the problem, although it would take a few years.
But it won’t happen. Firstly, because a large building programme would cost money. But more importantly, because it would result in the loss of advantage and financial gain that has accrued to those who have made money hand over fist in the property market, i.e. the wealthy, established, typically Tory-voting, older generations of England. To put it bluntly, the losers would be people who already vote Tory, and the winners would be those who either don’t, or can be duped into thinking that doing so is in their interests. From an electoral point of view, doing anything about the housing market is, for the Tories, another no-brainer.
What does this ultimately mean? The explosion of buy-to-let represents the systematic transfer of wealth from the have-nots to the haves. We are nurturing a society where increasing millions will live in poorly maintained properties, at the mercy of eviction and arbitrary rent increases, never able to build enough capital to make their own investments or achieve financial security, and every month effectively throwing money down the drain. At the bottom of that drain there will be another class, collecting the money and investing it to make more. This second class will live in the security and comfort denied to those who make their own possible. In sum, the scandal of the buy-to-let market represents the apotheosis of Tory Britain. A society in which the rich don’t just get richer as the poor get poorer, but in which the rich get richer because the poor get poorer.