15 October 2018

How to make home ownership more than just a dream for millions


There are few words in the English language which better encompass everything conservatism is meant to be about than “home”. Home is not just the roof over your head. Home is where you are from, where you feel you belong, where you feel safe. We humans are not abstract beings; we exist in particular spaces at particular times. We lay down roots in places and communities, and they become part of who we are.

Home is closely intertwined with another concept: ownership. Our home is filled with our possessions and everything in the world that we value and choose to surround ourselves with. Property is not just important to a conservative because it is fundamental to a capitalist system; the reason we have come to base our society on such a system is because what we choose to buy and own is how we express ourselves, how we store memories, how we shape our identity.

The ultimate expression of these instincts is the desire to own our own home. Indeed, studies consistently find home ownership is linked to greater life satisfaction, community engagement, and social capital.

Those who cannot own are forced to rent. Of course, some choose to rent because it suits their needs, but polling consistently finds that people overwhelmingly want to own eventually. In YouGov polling on why people favour home ownership, the most popular responses are “do what you want” and simply “the property is mine”. This longing for the freedom and security which come with owning property is a fundamental human impulse, and those of us on the centre-right should never be shy about saying so.

Conservative politicians have always championed home ownership. The idea popularised in the 1980s of Britain as a “property-owning democracy” was about appealing to this natural desire, and the UK saw rates of home ownership rise consistently until they were among the highest in the advanced nations.

Sadly, the UK now has the fourth lowest rate of home ownership in the EU. This slide has hit young people the hardest.

In the last 20 years the ratio between median incomes for 25-34 year olds and median house prices has more than doubled. Almost eight in ten would now need to have more than half their annual income in the bank to afford a 10 per cent deposit on an average property. With so many young people priced out of the market, rates of home ownership have nose-dived. Ownership rates among the middle income quintile have collapsed from two in three to just one in four.

This should be a pressing concern for any government which believes in the power of ownership. It should also worry anyone who wants to live in a country where people can achieve their dreams and aspirations regardless of where they were born or who their parents are. Property is becoming concentrated in the hands of the well-off few, many of whom will be able to pass that wealth on to their children. Meanwhile, millions of those less fortunate have to scrimp and save for decades to build up enough for a deposit.

In the last few years, thanks to some concerted efforts by government since 2010, we have finally seen the rate of home ownership begin to slowly tick up again. But if that is to continue and the trend away from ownership is to be decisively reversed, it will require some radical new ideas and initiatives.

Ultimately, of course, our housing issues can only truly be solved by ensuring supply can effectively meet demand. That means building more, and addressing those areas of government policy which have acted to inflate prices and make property more tempting than other more productive investments. However, it is going to take some considerable time before enough progress can be made in those areas to give most young people a fighting chance of owning their home. In the meantime, we need ways to address the affordability issue.

At the Centre for Policy Studies, we have been working hard over the last few months on proposals for a new “Help to Own” scheme, and the resulting paper is published today. The idea is simple: capture some of the considerable gains in property values many landlords have enjoyed and use that money to help move people from renting to owning.

You don’t pay Capital Gains Tax if you sell your own home, but you do when selling additional properties. Given the dramatic increase in prices, many landlords would face sizeable tax bills when selling, especially since the rate payable on residential property is higher than other asset types.

Under our Help to Own proposal, landlords would be given relief worth one third of their CGT bill if they sell to their tenants. The rest, in turn, would go to the tenant to help with the deposit: a £2 top-up for every £1 they put in, until they have built up a 10 per cent deposit.

Many private tenants could afford mortgage payments but cannot afford a deposit. Help to Own would help tenants overcome that hurdle, while also giving landlords an incentive to move their property out of the private rented sector and create new owners. The policy also complements recent government attempts to make buy-to-let less appealing, by offering an attractive exit strategy to those landlords looking to divest.

The increase in transactions, coupled with the limit on the tenant’s equity support and other proposed caps on the relief for high-value properties, could offset the cost to the Treasury. There would also be shared ownership options for those who cannot afford to buy outright, in order to give as many people as possible a share in the benefits of ownership.

Our home is such an important part of who we are, and it is simply wrong that for so many people of my generation home ownership is now a distant dream. Fixing that would be an incredibly positive step towards building a country we can all be proud to call home.

James Heywood is a Senior Researcher at the Centre for Policy Studies.