Why Generation Rent not Tory Boomers hold the keys to Number 10

Published 3rd of September, 2022

The Prime ministerial hopefuls may have had to pander to homeowning baby boomers to secure the keys to Number 10, but to keep hold of them they will have to win over Generation Rent.

Apart from scrapping housing targets and championing the green belt, housing was largely absent from the leadership debates, it seems that the only things Liz Truss and Richie Sunak could agree on was to not upset existing homeowners, and when it came to housebuilding, both were quick to get on board the ‘good’ ship HMS NIMBY

However, as Boris Johnson found out, winning the keys to Number 10 is one thing, but holding on to them is quite another, the rungs on that property ladder can be very slippery even for a political heavyweight.

Why Generation Rent hold the keys to Number 10

The real test for Ms Truss or Mr Sunak will be when they seek approval from the nation as a whole rather than just the paid-up, homeowning, party members.

It has been said that satisfied needs do not motivate. We are least interested in food after a big meal and most interested in food when we are hungry. In the main, Conservative party members own their homes therefore the challenges of homeownership are not a deciding factor for their choice of Conservative Party leader, although few, in our view, would welcome the building of more homes next to their own.

However, growing numbers of voters are struggling to get onto the housing ladder and these are votes that all mainstream political parties are very interested in capturing. Homeownership remains an aspiration for the overwhelming majority of renters and policies to promote homeownership have wide appeal. The party that gets its housing policy right will secure an awful lot of votes.

Why is housing important?

In simple terms, we all need somewhere to live, and we all want to feel safe and secure in the place where we live.

Why is owning your home important?

Unless the rules and regulations around renting change, renting in the UK will never be as secure as owning your own home, because ultimately, as every resident of Number 10 Downing Street eventually finds out, if you don’t own the asset, you don’t get to decide where you live and for how long.

And whilst homeowners are in the majority politicians of every persuasion and colour want to keep existing homeowners happy.

Why is homeownership politically important?

As fewer and fewer people can get a foothold on the housing ladder, increasing numbers of aspiring homeowners will support the political party that helps them climb the property ladder. The challenge for politicians is to be able to deliver something tangible, after all, talk is cheap, but money buys houses.

Price price price rather than location, location, location

To keep homeowners happy, politicians like to see house prices rise. Rishi Sunak wasted no time in cutting stamp duty following the merest hint that house price fall during the COVID-19 pandemic, but whilst rising house prices keep homeowners happy, they disenfranchise generation rent. The elusive policy for politicians is how to simultaneously keep house prices rising whilst increasing the number of homeowners.

Policy option 1: Build more homes

If building more homes is the answer, then both leadership hopefuls have shot themselves in the foot, we tend to get what we measure, and by scrapping housebuilding targets both Ms Truss and Mr Richie are likely to see fewer homes built whilst in power.

However, it is not as easy as just building more homes. We have to build the right homes in the right place at the right price to meet local demand rather than just beating or meeting national targets.

Help to buy has helped a great deal, but as we return from our summer breaks very few will meet the deadline to buy before the help to buy scheme closes and neither Ms Truss nor Mr Sunak has spoken about extending Help to Buy.

The other political challenge for housebuilding targets is balancing the needs (or rather the votes) of the 300,000 helped by the new homes against the number of existing homeowners who did not want more homes built in their backyard. It seems that Ms Truss and Mr Sunak have decided that building more homes loses more votes than it gains.

Policy option 2: 100% LTV mortgages

Politicians like to see house prices rise, but as house prices rise, fewer and fewer people can afford to buy a home. The deposit gap is in our view the biggest barrier to homeownership. Perhaps allowing homebuyers to take out larger longer mortgages is the answer. If securing the deposit is the problem, why not get rid of the deposit?

The credit crunch caused the extinction of the 100% LTV mortgage, but surely a government seriously trying to turn generation rent into generation buy could provide a mortgage indemnity guarantee to a lender to cover the risks of very high loan-to-value mortgage lending.

However, even with 100% loan to value lending, the mortgage may not reach the bottom rungs of the housing ladder, due to income ‘constraints’

You may be able to borrow 100% to purchase the averagely priced home of around £295,000, but an income of £40,000, requires an income multiple of 7.4x which is significantly higher than the Bank of England’s preferred ceiling of 4.5x. With a 4.5x income lending multiple, the deposit required is £115,000 – almost three years of gross annual income.

Even those buying with a joint income of say £60,000 and a lending multiple of 3.5x would need a deposit of £85,000.

In our view, the problem of the housing market always comes down to deposits.

Policy option 3: Longer-term mortgages

By extending the length of the mortgage, the monthly mortgage payments fall. Lower mortgage payments improve affordability. However, despite politicians' love of cakeism you really can’t have your mortgage cake and eat it. Mortgage payments will be lower, but you will make more of them and end up paying more over the term of the mortgage.

However, other countries use Government backed long-term fixed-rate mortgages to help homebuyers and we believe that used in the right place at the right time long-term fixed-rate mortgages could open up the dream of homeownership to many.

Policy option 4: Extend Help to Buy

In our view Help to Buy has helped, around one in every three new build homes has been sold using help to buy, helping a lot of people onto the housing ladder. However, the scheme is currently winding down and neither Ms Truss nor Mr Sunak has indicated they will extend the scheme.

The critics of Help to Buy say that it is inflationary and that whilst pumping more money into the housing market may relieve some of the symptoms in the short term, it is not a long-term cure for the ills of the housing market.

Policy option 5: Think outside the box

Homeownership is good, but it has turned our homes (the provision of security and shelter) into a financial asset that not everyone can afford. Whilst we cannot put the financial genie back in its box we believe there is a better way to address the needs of housing as a provider of security of shelter and a financial asset.

Uber, Spotify, and Air BnB have all demonstrated that we don’t need to own an asset to enjoy the benefits of an asset. We no longer own our music, but we have access to a much wide selection of music. Just as Spotify has democratised music, we believe that fractional ownership could democratise housing, providing both security of tenure and the risks and rewards of homeownership to all. Think Help to Buy but on a much bigger, much more granular scale, and the good news is that unlike Help to Buy this would not necessarily have to be funded by the taxpayer – which is good news for Ms Truss and Mr Sunak who are both keen to cut taxes rather than raise them.

Imagine if you could save for your deposit (or the deposit of your children and grandchildren), by investing in property as we invest in shares, or in a property ISA that invested in property, the value of your deposit would therefore track the housing market.

Imagine if you could get the benefits of homeownership without the need to own the whole home.

Imagine if you could invest in property by spreading your investment across multiple homes or regions rather than putting all your eggs in one basket.

Imagine if you could release a little cash from your home, by selling a little bit of it rather than by taking on equity-release debt.

Imagine if you could invest in property via your pension

We believe that fractional ownership could democratise housing, increase participation in the housing market, and provide security of tenure for those who need it most.

You can read more about our case for fractional ownership here:

Housing Hailey

Subscribe to Market Views