Central banks have been busy saving the West from its own excesses since the great financial crisis of 2007, but in the process, they have made housing unaffordable for young people, particularly in the UK.
House prices have surged in many UK cities, with record low interest rates and money printing making homes more affordable for “investors” and less so for those who actually need them as places to live in, as opposed to assets to speculate on.
Despite record low mortgages and various subsidies, homeownership is increasingly unaffordable for a rising number of people.
The consequence is deepening inequality, which makes the UK look more like a feudal, rather than modern, society.
One of the ways to tackle the so-called “housing crisis” would be to make renting an option perhaps as good, if not better, than buying a property.
Here are four ways in which the UK government could go about making renting a truly affordable option for young people in the UK – and a few of the reasons why it will never do it.
Bring in Rent Controls
The issue of rent controls has been discussed and debated ad nauseam, and the conclusion seems to be the same every time: it will not work.
It did not work before, critics say, pointing to a time when properties were left derelict by landlords who had no incentive to fix them, since they could not charge enough in rent to cover the costs.
But this just shows that rent controls were excessive and unrealistic, not that the idea was bad.
Rent controls could be set such that, for example, landlords are not allowed to increase rents by more than inflation, or perhaps a reasonable percentage above inflation, unless they make clear investment in improving the property.
The costs of the improvement works could be spread out in proportional increases in rent after the work is carried out, and could include interest to satisfy the present value of money equation.
The extent of the work, the duration, and other such details would be decided together with the tenants, so that the cost and rent increases are transparent and agreed in advance.
This brings us to the second measure that could be taken to make renting more affordable:
Give Tenants More Power
Currently, tenants are considered second-class citizens in the UK, far from the status they normally should enjoy, that of customers of a business.
There are quite a few landlords out there who do not see themselves as businesspeople offering a service for which they are getting paid in the form of rent, but rather as benevolent lords doing the tenants a favour by providing a roof over their head.
Tenants often lack rights that in other countries would be considered basic, such as the implicit permission to hang pictures on the walls, keep pets, redecorate in a colour of their choosing, or even have children.
Landlords often refuse to carry out necessary repairs such as fixing boilers or insulation to ensure the properties have enough heat and are free of mould, and when that happens there is little tenants can do about it.
If tenants fix issues themselves, the costs are seldom reimbursed. They could even be turfed out in a matter of months by landlords, having sunk thousands of pounds to turn a property into a liveable home, just for the landlord to put up the rent due to the “improvements.”
This would not be an issue if the third measure that could be taken would be implemented:
Make Eviction Harder
There are currently no rules as to how long a tenancy can be, but the standard is a short-term assured tenancy around six months to a year in big cities.
During this time, the landlord can only evict the tenant for serious reasons, such as unpaid rent or antisocial behaviour.
However, a short-term assured tenancy turns into a periodic tenancy at the end of its term, and during a periodic tenancy the landlord can simply evict the tenant with two months’ notice, without providing any reason.
On the flip side, of course, tenants are locked into a short-term assured tenancy for the duration of the term, but once in a periodic tenancy, they can leave by giving the landlord just a couple of months notice.
However, even so, the balance is heavily tilted in favour of the landlord. Tenants can find themselves forced to move out of a home and an area where they created relationships, made friends, and where their children went to school.
Needless to say, this does not create a lot of incentive for either landlord or tenant to adopt a long-term attitude.
A fairer system would be to ban evictions, even in periodic tenancies, except for very limited and serious occasions, such as non-payment of rent by the tenant or antisocial behaviour, the need to carry out substantial structural work, the landlord needing the property as a home, or needing to sell it due to financial constraints.
But all of the above would deal a heavy blow to a sector of the economy which has been thriving on uncertainty for tenants. And this is how we come to the fourth measure:
Regulate Letting Agencies Better
Letting agencies have flourished in an environment where people desperate for a roof over their head would accept to pay all sorts of fees to ensure they get a home.
This has been the case in busy cities, where the jobs are, and in London in particular. There have been numerous cases of abuses and dubious behaviour by letting agencies.
It is fair to say that this has brought about a number of welcome changes, the best known of which is the tightening of rules around tenancy deposits, which are no longer seen as fair game for landlords or letting agencies and must be kept in a separate scheme.
Letting agencies have also been banned from charging tenants letting fees – a welcome change as well, which hopefully will discourage the practice of offering only short-term assured tenancies for which, to be renewed, tenants had to fork out sometimes even hundreds of pounds.
But letting agencies often still push for rent increases higher than inflation even though there have been no improvements made to the property, and even for model tenants who keep the properties spotless.
Sometimes the landlords, who for convenience outsource the administration of their properties to letting agencies, are not even aware of these rent increase demands and lose good tenants just because the agency believes they can make more money out of new ones.
Such practices should be banned. Letting agencies should justify any increase in rent higher than inflation with significant improvements to the property (but not repairs that are necessary for the tenants to be able to live comfortably).
The four measures listed above would go a long way towards making renting an attractive alternative to owning a home in the UK.
But this is precisely why the government will not implement them. The entire UK economic model is built on the premise that home prices will keep increasing, with demand outstripping supply.
Part of this demand, of course, is due to foreign investors of various degrees of propriety who are keen to park cash in a sector that does not ask many questions as to where this cash is coming from.
But for house prices to keep rising, a significant part of demand must be domestic. Making it easy for people to rent would reduce demand for buying property. And this would send the whole house of cards crashing down.