John Heron: We need a root-and-branch review of the housing market


Only a realistic appraisal of the tenure distribution that we need – not want – will enable the building of a suitable housing market

The fifth annual Great Buy-to-Let Debate, held earlier this month in Westminster, was a useful opportunity to reflect on a challenging year and to consider the role played by the private rented sector within UK housing.

A key theme from the debate was that there were no ‘quick fix’ solutions in housing and that penalising landlords would do little to increase owner-occupation. Such measures could, in fact, have a detrimental impact upon the nearly five million people who relied on the sector for a home.

Warning of uncertainty
Indeed, the Joseph Rowntree Foundation recently warned that uncertainty in the PRS could lead to an increase in homelessness.

With the Right to Buy scheme continuing to erode the social housing sector, there are genuine questions over where people not currently in a position to buy a property will be able to find a home at a price they can afford.

It is too early to assess the impact of the Government’s recent interventions in the buy-to-let market. However, with demand for privately rented property continuing to grow (as evidenced by void periods at record lows and stable rental yields) and considering the volatility in financial markets, bricks and mortar will remain a viable asset class.

Nevertheless, the recent shift in policy on the PRS does seem to have been undertaken without reference to the dynamics of the wider housing market, and constraining its supply without increasing capacity elsewhere can lead only to problems.

So what is driving policy? The Chancellor’s stated aim in disincentivising buy-to-let was to “level the playing field” between first-time buyers and buy-to-let investors. But how real is this competition? There is little to suggest it is buy-to-let investors, rather than a widening gulf between house prices and earnings, that is arresting the ambitions of first-time buyers.

Legacy effect
As the Royal Institution of Chartered Surveyors recently observed: “The legacy of the drop in new-build following the onset of the global financial crisis is now really hitting home, with both the sales and letting markets continuing to show demand outstripping supply.”

With this in mind, for many on the Great Buy-to-Let Debate panel, and in the audience, the sense was that current housing policy was tied more to the political cycle than to the housing cycle. Increasing stamp duty on buy-to-let purchases is a case in point. While the move might have generated headlines for the Chancellor, it will do little to increase owner-occupation.

Only a root-and-branch review of the housing market, which considers all tenures as inter-related rather than isolated, will allow for coherent policymaking.

A key question raised at the debate was: how big should the UK’s PRS be? There are many opinions on this. However, the reality is that demographic trends – rising numbers of students, inward migration and a more mobile workforce – will continue to drive demand, regardless of how big or small we would like the sector to be.

This is why a joined-up approach to housing policy is needed. Only a realistic appraisal of the tenure distribution that the UK needs, not wants, will enable the building of a market around that need. Without this, inefficiencies will remain in each tenure.

John Heron is director of mortgages at Paragon