This is a guest post from a blogger, Derek Fisher, in London discussing the British Housing Crisis
It probably comes as no shock to most Britons, particularly those in and around London, to hear that the UK is in the grip of a housing crisis that shows little sign of abating any time soon. Rising house prices and tighter lending restrictions are making it more difficult for many first-time buyers to get onto the property ladder. And millions who are on that ladder are finding their positions imperiled because of what has been described as a mortgage time bomb that is set to go off soon.
Demand is far outstripping supply
A property shortage has caused house prices to rise at twice as much as previously estimated, meaning that by the end of 2015 prices will be 6% higher, according to the Royal Institution of Chartered Surveyors (RICS). Simon Rubinsohn, the chief economist at RICS, said, â€œGiven current market conditions, the latest data unsurprisingly shows house prices continuing to rise, and at an accelerating pace. As such, house price inflation has now quickened in each of the last seven months following a sustained period of easing towards the latter half of 2014.â€
Consider the current London rents crisis, for instance. Londonâ€™s population is predicted to surge past nine million by the year 2020. Yet it is building new homes at half the pace it needs to meet the intensifying housing demand from that growing population. Consequently, according to the Valuation Office Agency, Londonâ€™s average rent for all property types skyrocketed by more than 25% between 2011 and 2015. Presently the average is Â£1,350 per month and assuredly will get even higher.
To compensate for the shortage of accommodations, many Londoners have been obliged to seek creative solutions that include everything from â€œtiny housesâ€ to bedroom sharing to living on boats to property guardianship. There are even cases where men are offering desperate women free rent in exchange for sex.
The social housing crisis
London is an extreme example but as London goes, so goes the nation. Many people, particularly young people, who find themselves unable to buy are turning to rent as their only option, only to be faced with huge deposits as well as the requirement to pay six weeks rent in advance, not to mention exorbitant agents fees. Even for a moderate flat, renters must often come up with more than Â£2,000 just to get in the door. As a result, social housing has become even more important. Yet last year only 1,230 new council houses were built to offset an estimated 10,000-15,000 sold each year. In fact more than 1.5 million council homes have been sold since 1980.
Currently there is a government proposal to force local governments to sell as many as 113,00 more council houses. This is to compensate housing associations for the discounts at which they will be required to sell their houses to sitting tenants, in accordance with new legislation. In London those discounts may be as high as Â£104,000.
Not surprisingly there are objections, one of the chief ones being that these houses do not actually belong to the government. Rather they are owned by private charities for a declared charitable purpose: providing affordable rented housing. Many are saying that the government proposal is a flagrant abuse of private property rights. Beyond property ownership issues, some experts believe that the right-to-buy proposal will be disastrous for the housing market and will make the crisis even worse.
For its part the government claims it is helping more people achieve home ownership. But it won’t really fix the root problem: unaffordable property prices.
A ticking time bomb
Being a homeowner doesn’t necessarily let one off the hook. For millions of UK residents who are on the property ladder by virtue of an interest-only mortgage, the time for reckoning is approaching. Interest-only mortgages, in which buyers only pay the monthly interest and don’t pay the principal till the mortgage comes to term, were immensely popular in the 1980s and 1990s, when they were sold alongside an endowment policy. They enjoyed another spurt in popularity in the early 2000s, and by 2007 approximately one-third of all mortgages were interest-only.
The problem was that many of the original interest-only mortgage holders were counting on their endowment policies to pay off the debt when it came to term. They weren’t counting on the financial crash, which seriously deflated all too many of those policies. Even worse off were the buyers who failed to set up any repayment strategy at all. As a result hundreds of thousands will be faced with a significant shortfall as their mortgages come to term, and will either be forced to sell their homes or have them repossessed by the lender. This of course will only add to the housing crisis as these former homeowners scramble to find alternative accommodations. Fortunately here are options for most of them if they act soon.
There is no easy answer to the housing crisis; it is a multi-layered problem that requires a multi-layered approach. Educating homeowners and prospective homeowners is necessary, as is working for saner lending laws, more responsible planning regulations and fairer housing policies. It is hoped that the current crisis will be enough of a wake-up call to spur real improvements that will ensure better housing for more people.