By Paul Hackett, Director, the Smith Institute, and Secretary to the Affordable Housing Commission.

The societal costs of the Coronavirus (COVID-19) pandemic are enormous and will send shockwaves through housing markets across the globe. The UK is no exception. Indeed, a COVID-19 induced recession is likely to exacerbate the country’s on-going housing crises – particularly in England which already faces acute affordability problems with an estimated one in five households facing some form of housing stress.¹  However, a different path is possible if the British government is willing to accept that the housing system has become damagingly unbalanced and that the costly tenure shift towards a fragmented private rented sector (PRS) is at the heart of the problem. 

Whilst the emergency protection for buyers and renters during the British coronavirus lockdown have been widely welcomed², the legislation is a temporary fix to deep-rooted, pre-coronavirus failings. The special measures will have to be reconfigured as the government moves from crisis management to recovery planning. A kick-start programme to help revive the economy is expected to take centre stage. This should be viewed as an opportunity to address the UK’s structural housing weaknesses rather than just a short-term stimulus package.³  

With economic activity forecast to contract significantly this year⁴ local leaders – especially in poorer areas – are calling for major pump-priming of housing and regeneration initiatives. The new Conservative government will be sensitive to this given that its election success in “left behind areas” was in part built on a pledge to “level-up” growth outside of the EU. However, many areas (and housing markets) in the north and midlands have yet to fully recover from the 2008 downturn. There are also strong counter-pressures in the over-heated south – the government’s heartlands – to shore up housing markets and house prices. Ministers will want to lift all the boats, with talk of “build anything anywhere”, but this will be hard (and expensive) to deliver in a frozen housing market – especially against a backdrop of rising unemployment and falling incomes. The outlook for the large number of the UK’s struggling renters looks especially bleak. 

The problem is no one is sure how the pandemic will play out. The IMF warns that the contraction in the global economy is much worse than 2008 and is hitting economies through multiple channels.⁵  Transactions and values in the high demand markets may recover fairly quickly, but the downturn could cast a longer shadow elsewhere and widen the UK’s already stark regional divide. There are also added concerns about specific housing sectors, such as holiday lets and student housing, as well as question marks about whether the shift to home working will change the way people view their housing choices.  

In the UK – like other Western countries – there is an urgency to reopen construction sites. There’s talk of extra loans, planning deregulation and extending the popular Help to Buy schemes.⁶  If demand remains sluggish there could also be additional support for more affordable (mostly intermediate) housing and for improving housing conditions – including new decarbonisation and fire safety improvements.⁷  

These initiatives are long overdue. The UK has an ageing housing stock and new supply of affordable homes has consistently fallen well behind demand. However, there is a worry that ministers – with so much on their plate – will be content to just return to the status quo ante. That would be a mistake in the view of the Affordable Housing Commission – an independent body of housing leaders and experts. Pre-pandemic, England was already suffering from a broken housing system, with high levels of housing stress: widespread unaffordability, increased homelessness, over-crowding, long housing waiting lists, higher rent arrears and ever widening housing wealth inequalities. A failure to address the causes of those problems would risk repeating and deepening the crisis.

The housing problems in England – where the market value had risen to some £6.5 trillion⁸ – have deep roots and connect to the role that property investment and the ‘financialisaton’ of housing has played over the last decade in pumping up land and house prices. The position in Scotland (and to a lesser extent Wales and Northern Ireland) are different, not least in terms of property prices and affordability⁹ – although they too have suffered from land and property speculation. Nevertheless, Scotland’s ministers will no doubt want to remind the national government that their housing markets proved more resilient to the global financial crisis.  

The English housing crisis is England-made, overseen by both Labour and Conservative administrations. At its source are two important inter-related tenure changes: a dramatic and largely unregulated growth of the PRS – which has more than doubled in size in less than twenty years (up from less than one in 10 homes to around one in five) – and a deliberate and persistent dis-investment in social housing, including a sharp reduction in housing subsidies for low cost housing, a switch from social rents to lettings at higher rents close to market rents¹⁰ and the sale of some two million heavily discounted public homes under the long standing Right to Buy scheme.  

Today the social housing sector is half what it was at its peak in the 1980s – shrunk down from three times the size of the PRS. Households in the PRS have meanwhile increased from 2.8 million in 2007 to over 4.5 million, making it the second-largest sector after owner-occupiers. There has been a steady rise in the number of professional, large landlords and a welcome expansion of ‘build to rent’, but much of the PRS is still made up of ‘amateur’ investment landlords – over 1 million individual landlords owning one to five properties.¹¹   

The expansion of the PRS (with buy-to-let lending increasing from £9.1bn in 2000 to £240bn in 2017) has changed Britain’s property owning profile, consolidating housing wealth among the “housing haves” and reducing levels of homeownership rates – with small landlords often ‘pricing-out’ potential first time buyers and pushing up house prices.¹² It has also spawned a new “generation rent”, many of whom – if they are still renting privately when they retire – are likely to face serious housing difficulties. 

The biggest and most damaging impact of the rise of the PRS has been on low income households. Around a third of private renters now live in poverty¹³ and a growing number of them are over 45.¹⁴ For many in the bottom half of the income distribution this tenure shift has been devastating: 20 years ago social rented housing provided 36% of homes for this half of the population and the PRS housed 12%. By 2017, social rented housing was down to 28% and the PRS had grown to 22%. If the trend continues the social rented sector is forecast to shrink by a further 400,000 homes to just 11% by 2045.¹⁵ The net result will be even more vulnerable households reliant on the PRS, where there is less security and (in many areas) significantly higher rents.¹⁶  And, because the British housing system relies on housing welfare support (housing benefit), the cost to the public purse is expected to carry on increasing. Indeed, it was predicted before the pandemic that the housing benefit bill could treble to £71bn by 2050¹⁷. 

The pandemic highlights the costs and consequences of a housing system over-reliant on a large and fragmented PRS, for the most part ill-suited and ill-equipped to cope with a housing crisis. However, now may be the perfect time to rebalance the housing system. As Lord Best, chair of the Affordable Housing Commission, commented to the UK Parliament’s inquiry on the long term delivery of social and affordable homes, “the social housing sector has the capability and organisation to rise to the challenges that the crisis brings, the position for many private tenants and private landlords is much more fraught”.  

Some private landlords will allow ‘rent holidays’ and show forbearance, but others that rely on rents for all or part of their income may have no option to evict if tenants can’t pay and the benefit system falls short. The government has recently increased the housing allowance to support private tenants on benefits and promised greater security of tenure.¹⁸ However, the fear is that there could be a perfect storm as emergency measures are withdrawn of increased evictions and more widespread housing stress as growing numbers of tenants struggle to get by.

Social landlords could be helped to step in – as they have done in the past – and covert PRS properties to social tenancies, with safeguards in place for existing tenants. In addition, there is a compelling case for local authorities across the UK to get building again at scale, using enhanced compulsory purchase powers and extra borrowing capacity where necessary.¹⁹ Current annual build rates of social rented housing (including homes from planning gain) total under 10,000 pa in England – falling far short of latest assessments, which suggest levels of need at around 90,000 pa.²⁰ Extra help could also be made available to community organisations so they can acquire empty and low-quality property to regenerate neighbourhoods. These measures, alongside the continued withdrawal of financial incentives for buy to let mortgages could start to reverse the tenure shift.²¹  

Boosting the supply of social and affordable housing makes sense as a counter-cyclical measure. Besides the economic benefits, it lowers the housing benefit bill and reduces housing poverty. It will also crucially alter the tenure mix. However, making housing affordable again will be far from easy to do in a country which has become preoccupied with property wealth and stigmatised public housing. Government is right to intervene in the current crisis, and what once seemed too radical now seems possible. But whether the new Conservative government has the motivation and political will to look to the long term and rebalance the housing market for the public good, not private profit, is still in doubt.   

Sources

1. According to the Affordable Housing Commission’s (AHC) research in 2019 some 4.8 million households in England have housing costs over a third of net equivalised household income.
2. These include suspension of new evictions from social or private rented accommodation while this national emergency is taking place, a mortgage payment holiday, an increase in housing benefit, extra help to support rough sleepers – see House of Commons briefing paper ‘Coronavirus: Housing support’ (30 April 2020).
3. ONS, Deaths involving COVID-19 by local area and socioeconomic deprivation: deaths occurring between 1 March and 17 April 2020 – analysis in its infancy interpretation of such data needs to be careful to avoid ecological fallacies. For the potential distributional impact on household finances see Resolution Foundation, The economic effects of coronavirus in the UK (2020) and Resolution Foundation, Doing what it takes (2020).
4. HM Treasury Forecasts for the UK economy: a comparison of independent forecasts (April 2020).
5. See IMF Blog, The Great Lockdown: Worst Economic Downturn Since the Great Depression.
6. Over 350,000 homes have been supported by the Help to Buy schemes, entailing £12bn of loans. See National Audit Office Help to Buy: Equity Loan scheme – progress review (PDF).
7. In light of the Grenfell Tower fire and subsequent inquiries the cost of fire safety improvement in social housing could exceed £10bn National Housing Federation, Response to the Grenfell Inquiry report .
8. See Savills, UK housing stock now worth a record £7.39 trillion after decade of gaining £750 million a day .
9. Average house prices in England in 2019 were £251,000; Wales £164,000 and Scotland £155,000 – although these masked wide regional variations, particularly between London (£475,000) and the lower demand areas in the North of England. Office of National Statistics, UK House Price Index: September 2019.
10. Labelled “Affordable Rent” (equivalent to 80% of market rents in most part of England and 60% in London)
11. According to official ONS data there are around 1.5m private landlords in England. The vast majority (94%) are individual landlords, not companies: 45% have a single property and 83% have fewer than five properties – most purchased their properties as some form of investment.
12. See AHC’s report Making housing affordable again: rebalancing the nation’s housing system (2020).
13. Around 2m households in the PRS are in unaffordable housing – representing 43% of all households renting privately. Office for National Statistics, UK private rented sector: 2018
14. The numbers of households in the PRS headed by someone aged over 64 will more than treble over the next 25-30 years to 1.5m, many on low incomes. See AHC report.
15. See AHC report.
16. AHC research showed that market rents in almost every area are significantly higher than rents in the social housing sector- up to three times higher in London.
17. See research by the Centre for Social Justice’s Housing Commission.
18. Local housing allowance rates were increased on 1 April 2020 after a 5 year freeze. The government is also promising to abolish “no fault” Section 21 evictions in England so that landlords will no longer be able to evict tenants without a legitimate reason
19. The borrowing caps on stock owning local authorities were lifted in 2018 and more grant funding and borrowing guarantees for social and affordable housing were made available in 2019 and 2020, albeit well below funding levels in the past
20. MHCLG, Live Table 1000 and Bramley, G, Housing Supply Requirements Across Great Britain for Low-income Households and Homeless People: Main Technical Report (Heriot-Watt, 2019)
21. Includes phasing out of tax relief on mortgage interest and reductions in capital gains tax relief  

To cite this article: Hackett, Paul. COVID-19 pandemic puts the spotlight on the UK’s broken housing system – time for a tenure shift? Policy Scotland, 18 May 2020, https://policyscotland.gla.ac.uk/pandemic-puts-spotlight-on-the-uk-broken-housing-system-time-for-a-tenure-shift

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