no place called home: the causes and social consequences of the uk housing ‘bubble’

No place called home: the causes and socialconsequences of the UK housing ‘bubble’bjos_1311 231..255

John Bone and Karen O’Reilly

Abstract

This paper examines the key causes and social consequences of the much debatedUK ‘housing bubble’ and its aftermath from a multidimensional sociologicalapproach, as opposed to the economic perspective of many popular discussions.This is a phenomenon that has affected numerous economies in the first decade ofthe new millennium. The discussion is based on a comprehensive study thatincludes exhaustive analysis of secondary data, content and debate in the massmedia and academia, primary data gathered from the monitoring of weblogs andforums debating housing issues, and case histories of individuals experiencinghousing difficulties during this period. This paper is intended to provide a broadoverview of the key findings and preliminary analysis of this ongoing study, and isinformed by a perspective which considers secure and affordable housing to be anessential foundation of stable and cohesive societies, with its absence contributingto a range of social ills that negatively impact on both individual and collective wellbeing. Overall, it is argued that we must return to viewing decent, affordablehousing as an essential social resource, that provides the bedrock of stable indi-vidual, family and community life, while recognizing that its increasing treatmentas a purely economic asset is a key contributor to our so-called ‘broken society’.

Keywords: Housing bubble; credit crunch; buy to let; broken society; marketiza-tion; social justice; well being

Homes are the building blocks of our communities. They affect our health,our wealth, and our opportunities for happiness. (Department for Commu-nities and Local Government. (DCLG Housing Green Paper, July 2007)

Introduction

It is fairly evident that one of the most significant socio-economic events of thefirst decade of the twenty–first century has been the housing market volatility

Bone (School of Social Sciences, University of Aberdeen) and O’Reilly (Department of Social Sciences, Loughborough University)(Corresponding author email: [email protected])© London School of Economics and Political Science 2010 ISSN 0007-1315 print/1468-4446 online.Published by Blackwell Publishing Ltd, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden,MA 02148, USA on behalf of the LSE. DOI: 10.1111/j.1468-4446.2010.01311.x

The British Journal of Sociology 2010 Volume 61 Issue 2

that, as a central feature of the credit boom and bust of this period, has rockedeconomies across the developed world.

NEVER before have real house prices risen so fast, for so long, in so manycountries. . . . According to estimates by The Economist, the total value ofresidential property in developed economies rose by more than $30 trillionover the past five years, to over $70 trillion, an increase equivalent to 100%of those countries’ combined GDPs. Not only does this dwarf any previoushouse-price boom, it is larger than the global stockmarket bubble in the late1990s (an increase over five years of 80% of GDP) or America’s stockmar-ket bubble in the late 1920s (55% of GDP). In other words, it looks like thebiggest bubble in history. (Economist, 16 July 2005)

What has been exceptional about this particular period of housing marketinstability, beyond its scale and ubiquity, is that its causes and consequencescan be understood as being one feature of a wider climate of instability andexcess that has its roots in the (re)marketization of economy and society, andthe deregulation of financial markets, that emerged in the late 1970s. It is nowclear that this economic sea-change, from the managed, redistributive socialcapitalism of the postwar era, has produced growing income and wealthinequalities, burgeoning indebtedness, and increasingly insecure work, as wellas general economic and, crucially, housing market volatility, particularly in thenations, such as the UK and USA, who wholeheartedly embraced it (Elliottand Atkinson 2008; Harvey 2007).

Public policy, particularly but not exclusively in the UK and USA, in housingas in most other areas of economy and society, continues to be dominated bya neo-classical economic orthodoxy – a dusted down variant of nineteenthcentury laissez faire – which has informed and provided the theoretical legiti-mation for this neoliberal socio-economic shift. This economic model,imparted to several generations of economics graduates, continues to consti-tute an almost unassailable common sense for the majority of our politicians,officials and policymakers and has at its core several almost ‘sacred’ assump-tions – that free markets most efficiently price and allocate resources andrisk, operate competitively, reflect the outcome of the free choices ofrational actors, tend towards equilibrium, and produce economically optimaloutcomes – all of which have been at the very least been called into seriousquestion long before the recent crisis (Keen 2001; Ormerod 1994).

As is argued below, the divisive, destabilizing and risk-inducing effects ofneoliberalism as they have impacted upon financial, labour and, in this case,housing markets have seriously undermined the conditions that support wellbeing, social cohesion, family formation and, potentially, social and politicalstability. With respect to the housing market, specifically, it is our view thatrunaway inflation, property speculation, and the cultural, legislative and finan-cial arrangements that have fostered these developments, have made a major

232 John Bone and Karen O’Reilly

© London School of Economics and Political Science 2010 British Journal of Sociology 61(2)

contribution to a broad range of social problems, undermining the UK gov-ernment’s asserted aims across a range of crucial policy areas.

Methods

In exploring the issues surrounding the housing bubble phenomenon, debateand writings in the press, financial journals, government documents and aca-demic literature were collated and analysed as a means of coming to someunderstanding of the causes and consequences of global hyper inflation inhousing markets around the world, as well as charting the particular effectswithin the UK.

A broad-based and intensive study was also undertaken over a three yearperiod, involving email, telephone and face to face interviews, content analysisof responses to a BBC forum (‘Have your Say’) and observation of three otherweblogs (PricedOut.org.uk, HousePriceCrash.co.uk and First Rung.com). Adedicated website was also set up with a view to gaining contacts and casehistories. This included a call for email interviews, with links to the site beingposted on the weblogs. This generated 46 analysable and in-depth email inter-view responses, 2 of which we also piloted as telephone interviews and 2 as faceto face interviews. The monitoring of weblogs has also generated literallyhundreds of brief, but analysable, responses. The research is currently ongoingtracing developments in the housing market; notably the effects of the creditcrunch.

Overall, from the variety of these sources we have been able to build apicture of both the way in which various features of the global financial system,and the cultural climate it has engendered, have coalesced to produce volatilityin the UK housing markets, with a range of social and personal consequencesacross a number of dimensions.

The causes of the boom

Until around the latter half of 2007, the accepted wisdom amongst leadingeconomists and disseminated in the UK press and mass media was that thehouse price boom that began in the early years of the decade was simply aconsequence of increased demand for housing that was outstripping supply; aparticularly vigorous upturn in the UK’s cyclical property market (Barker2004; Hamnett 1999). Various factors were cited as having contributed to anupsurge in demand, such as a rise in divorce and individuals choosing to livealone, increased immigration, as a well as a lack of housing supply due to slowrates of building, scarcity of land and a sclerotic planning system. It has becomeincreasingly evident, however, at least since the advent of the credit crunch,

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that such a straightforward explanation is wholly unsatisfactory. Even asidefrom what we now know about the nature of housing finance during thisperiod – more of which below – there are other very obvious reasons forquestioning such an analysis.According to the Nationwide (2009), house pricesin the UK rose by an average of 198 per cent between 1997 and 2007, wellbeyond their long term trend and a rise that is very hard to account for bysimply referring to demographic shifts.

As illustrated in Table I, while there has been continuous household growthin the UK, over recent decades this has been relatively stable at roughlyaround 10 per cent per decade. As above, however, this does not adequatelyaccount for the exponential increase in house prices, particularly between 2001and 2006. Moreover, as is discussed below, while there was some mismatchbetween household formation, demand and housebuilding during the boomyears that may have contributed to rising prices in some areas, particularly inLondon, the South East and Wales, this could not explain the level of priceincreases throughout the UK as a whole (Wilcox 2005).

We would also expect that house prices should increase broadly in line withgeneral inflation.As Table I also indicates, house prices through the 1980s roseby roughly one and a half times the rate of general inflation, rising to two anda half times in the 1990s. In the first half of the 2000s, however, the rate of houseprice inflation was just over six times the level of general inflation. Overall,these figures taken together support the view that something other than‘normal’ growth, population pressures and so on has been driving UK houseprices in recent years, a notion supported by the recognition that the housingboom occurred simultaneously across a range of nations despite widelyvarying demographic characteristics (Economist, 16 July 2005).

Liquidity: interest rates, competition and ‘securitization’

It has now become accepted wisdom that the activities of the financial andbanking sector played a central role in generating housing market volatility, intandem with instability across the economy generally. This view is consistent

Table I: Household growth, house prices and general inflation

Year ofcensus

UK householdsmillions (ONS)

%Change

Average GBP houseprice (Nationwide)

(Q.4)

%Change

Generalinflation(BOE)

1981 20.18 – 23,798 – –1991 22.39 11% 53,635 125% 78%2001 24.13 8% 92,533 73% 29%2006 25.28* 5% 172,065 86% 14%

Note:* Household numbers for 2006 are projected.



with a weight of informed opinion that views the housing bubble as just one ofa sequence of asset bubbles, rooted in neoliberal economic management andthe associated deregulation and growing power of the financial sector (Harvey2007; Hutton 1995; Stiglitz 2003; Hamnett 2009).

On this point, it is fairly clear that one of the key factors that influencepeople’s decision to purchase a home is the price and availability of credit.Interest rates globally have been historically low for most of the last decade,while a number of commentators have cited this as a cause of rising houseprices, given the effects on affordability (Wilcox 2005; Cameron, Muellbauerand Murphy 2006). In fact, it now seems clear that this argument holds con-siderable merit. In the wake of the collapsing of a previous bubble, theso-called ‘dot com’ boom, there was a fear that the fallout from crumblingstock markets would feed through to the wider economies – particularlyalthough not exclusively in the UK and USA – reducing the consumption thathas been increasingly relied upon to drive economic activity. This reliance onconsumption had been increasing within these ‘service’ economies as manu-facturing was in decline (Hutton 2002; Stiglitz 2003). The response to thisthreat to consumption on both sides of the Atlantic was to lower interestrates – known as the ‘Greenspan put’ in the USA and followed by the Bank ofEngland – to stimulate borrowing and spending to sustain consumption and,thus, economic activity. Thus, ‘. . . cuts in interest rates sanctioned by the Fedand the Bank of England led to property prices rising rapidly in both the USAand the UK’ (Elliott and Atkinson 2008: 131). Rather than having experienceda housing boom per se, the latter can be understood as being merely onemanifestation of the global credit boom, where runaway price increases haveoccurred across various asset classes (Bank of England 2008).

Further features of the deregulation of the banking and financial sector havealso played a key role in producing the ‘housing boom’. The 1981 move thatallowed banks and building societies to compete in each other’s terrain, withreduced reserve requirements, greatly increased competition and lending inthe mortgage market. This resulted in more lenders offering more ‘attractive’packages on easier terms, pushing up property prices (Zacchaeus 2000 Trust2005; Hamnett 2009). Moreover,

. . . as property prices rose, lenders became even more and more confidentin their lending – advancing ever higher proportions of the value of homesat ever greater multiples of borrowers’ income. (Hutton 1995: 72)

As is clear, this quotation refers to the 1980s housing boom, rather than therecent one. However, the factors that influenced the 1980s housing market, andwhich led to the subsequent crash of the early 1990s, had developed evenfurther at the beginning of the new century, and had been further ‘enhanced’by the expansion of another major ‘derivative’ of deregulation; mortgagesecuritization (Hamnett 2009). While there are various complex levels of this



process, put simply, through the combined efforts of mortgage lenders and thefinancial markets, mortgages, rather than being merely granted and held by theoriginators of the loans, were parcelled up into now infamous mortgagebacked securities (MBS) and collateralized debt obligations (CDOs) and soldto investors and financial institutions. The idea was that the risk of lendingwould be spread amongst a larger number of actors, providing new areas forinvestment and profit, while more funds would be available for lending. Thesimple effects of this process, however, were twofold. Firstly, the originallenders could relieve themselves of much of the risk of making loans, leadingto falling lending standards and, secondly, more lending could take place asloans could be recycled providing capital for further loans (Mints 2007). Theproblem of this system, however, first came to light with the US sub-primefallout and the Northern Rock crisis, as lax lending inevitably entailed thatmany of these mortgages were much more risky than anyone envisaged,including the rating agencies who were charged with evaluating them, andmany more debtors than anticipated defaulted. None the less, as we are nowacutely aware, for a time, securitization was a crucial factor in the competitionto lend as much as possible to as many as possible (National Audit Office2009).

As Figure I illustrates house price increases in the UK were accompanied bya significant rise in mortgage lending. In qualification, undoubtedly the direc-tion of cause and effect might be debated, in that it might be argued thatmortgage lenders were merely responding to changing market conditions.However, even if one were to accept this view, what seems certain is that houseprices could not have risen so far without what has, in retrospect, been widelyacknowledged as being a period of excessive and risky credit expansion in themortgage market (Hamnett 2009).

Figure I: UK House prices and mortgage lending (2000–2008)

400350300250200150100500

2000

2001

2002

2003

2004

2005

2006

2007

2008

UK Gross Mortgage Lending £000m (CML)

Key:

UK Mortgage lending for House Purchase £000m (CML)

UK Av. House Price (Q.4) £000s (Nationwide)



Buy-to-let: homes as properties/investments

The proliferation of mortgage lenders, increasing competition and enhancedavailability of credit also led lenders to develop new products in their efforts tosecure and extend market share (Hamnett 2009). One of these products, the‘buy-to-let’ mortgage, was aimed at encouraging ordinary investors to becomeamateur landlords.

It must be noted that the emergence of buy-to-let – an example of whatHarvey (2007: 31) calls ‘the carrot of individualized entrepreneurship’ – wassupported by successive UK governments’ housing policy, that sought toexpand the private rented sector – just as it had sought to reduce the socialrented sector (through ‘right to buy’) – as a further plank of the marketizationof society. Private sector tenants, who had previously enjoyed relatively securetenancies and rent controls (deemed to have been necessary checks on unscru-pulous landlords in the postwar era) found these securities being radicallyeroded.The introduction of the Assured Shorthold Tenancy (first introduced inthe UK Housing Act of 1988 year and revised in the 1996 Act), enabledlandlords to grant a tenancy for a guaranteed period restricted to six months,whereupon the tenancy, including the level of rent, could be renegotiated.

Before the 1990s, it was often difficult to regain possession of a propertyonce it was let out. So, if someone wanted to take a position on house pricesby buying and selling over a short space of time or, alternatively, to purchasea desired property with the expectation of them or other members of theirfamily living in it at a later date, they were well advised to keep the propertyempty. Now it is easy to regain vacant possession, so this encourages short-term letting until the owner wishes to live in or dispose of the property. (Ball2006: 3)

To some extent, as above, these changes might be viewed as providing a charterfor property speculation, where investors could buy properties, place a tenantin them to cover loan repayments for a short period (in some cases many didn’tbother), only to resell the property some months or years later for a quickprofit in a rising market (Elliott and Atkinson 2008). Moreover, with the oddsstacked in favour of landlords, and the risks thus reduced, it was perhapsunderstandable that lenders regarded the ‘amateur’ private rental sector as apotentially lucrative area for extended lending and profit growth. The provi-sions of the AST also meant that lenders could offer these mortgages unbur-dened by the concern that repossession might also involve the obstacle of asecure sitting tenant. In fact, lenders regularly stipulated that buy-to-let loanswould only be granted on properties where the tenancy was for 12 monthsor less.

Further strengthening the investor’s hand, in relation to first time buyers,the UK government has allowed fairly generous tax concessions on buy-to-let, allowing what have largely been private investments to be treated as



businesses, where the cost of the investment (interest on mortgage payments)could be offset against rental income for tax purposes.

The buy-to-let boom, which is currently doing so much damage, was alsogovernment inspired. Mortgage interest tax relief was abolished for first-time buyers, and handed to buy-to-let landlords. Now, if you buy a house tolive in, you have to pay the interest on your mortgage out of your ownafter-tax earnings; but if you buy a house to rent out, the interest on yourmortgage is tax deductible. In other words, the very people who cannotafford to buy homes are subsidising, through their taxes, the mortgages ofthe people who can. Often these houses are left empty, as investments.(McWhirter 2007)

‘Buy-to-let owners [have] a financial advantage over those trying to buytheir first home, pushing prices even higher – further out of reach.Why doesthe government still offer tax incentives to those who buy simply to rent?(Paul Diggory, President of the Chartered Institute of Housing, BBC‘Money Box’ 23 June 2007)

Around one million BTL mortgages have been granted since these productswere introduced in 1996, while it is also suggested that many more landlordshave also entered the market with cash purchases and through undeclaredstandard mortgages or mortgage equity withdrawal (see the gap betweenGross Mortgage Lending and Lending for House Purchase in Figure I). Manyhave turned to housing investment to boost relatively stagnant occupationalincomes and due to a lack of faith in private/occupational pension schemes andother forms of investment. It must be noted that some of these amateurinvestors will themselves be among those caught out by the propertydownturn. Overall, however, we would argue that one of the major effects ofthis trend has been that risk and insecurity experienced by one generation, dueto market liberalization, has been shifted to the next generation and the lesswell heeled, through raising the price of a home beyond the means of most firsttime buyers, and through renting out these properties to the same on highlyinsecure terms.

At the end of the 1980s, around 40% of 20–24 year olds and roughly 66% of25–29 year olds were already owner occupiers. Now only 20% and 50% ofthese age groups respectively purchase. This is a considerable social change,with tens of thousands of the current generation of younger people opting(our italics) to rent instead of owning. (Ball 2006)

As above, research by property economist Professor Michael Ball, conductedfor the Association of Residential Landlords (ARLA – see web sourceslisting), appears to attribute a marked decrease in first time owner occupiersand the deferment of house purchase to a change in choices that privatelandlords are responding to. However, we would argue that this appears to be



at the very least a somewhat implausible conclusion by contrast to the morecompelling explanation that younger people are simply being forced to rent asthey have been priced out of the market by investors competing predomi-nantly for first time buyer properties.

. . . the myth that BTL investors offer a professional service to the pricedout first time buyer is simply nonsense. If a tenant could afford to pay theBTL investors mortgage then he or she could afford to buy independently.BTL thrived on basic attrition – buy ahead of the first time buyer pack thenattempt to rent back to this group. (Holmes, Chief Executive, First Rung2008)

‘An unresponsive market?’

The OFT is concerned that the market for home building is not working welland there appears to be significant consumer detriment in the form of lowsupply response to sustained rising prices, low levels of quality and a lack ofinnovation. (Office of Fair Trading 2007)

Amongst other factors that may have influenced house prices during theboom, there is the perception that housebuilders did not adequately respondto increased demand and subsequent price rises in terms of increasing supply.This, amongst other issues, prompted an investigation of the house buildingindustry by the UK Office of Fair Trading (2007). As illustrated in Figure II,while house prices rose dramatically between 1997 and 2007, private sectorcompletions per annum rose by around 25 per cent, prior to declining as themarket peaked. New building during this period was also heavily skewedtowards, in particular, two bedroom city flats rather than much needed familyhomes (ONS 2008a).

It may also be noted that, as the market began to decline, many buildersintroduced ‘incentives’ (cash backs, ‘discounts’ and so on) that, might be

Figure II: UK House prices and housing completions (1997–2007)

250

200

150

100

50

0

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

UK Private Sector Housing Completions 000s (DCLG)

New Build Average House Prices (Q.4) £000s (Nationwide)

UK Average House Price (Q.4) £000s (Nationwide)

UK Public Housing (RSL & LA) Completions 000s (DCLG)

Key:



viewed as involving the offering of de facto price cuts while maintaining abovemarket level ‘headline’ prices. Perhaps the most unsettling development in thisregard is the rise in deferred payment schemes. Thus, in a moribund market,rather than a price reduction, an ‘interest free loan’ for a proportion of thepurchase price is offered, that must be paid back to the lender after a givenperiod (usually 5–10 years) (Northedge 2008). What is most concerning aboutthis development is that many first time buyers may run into serious financialdifficulties when, already paying high mortgages, they are called upon to repaythe extra loan, particularly as there is no guarantee that prices will have risensufficiently to fund additional payments. Overall, this could be perceived asvendors offering a necessary price cut in a difficult market, merely to requestits return at a later date. The UK government’s decision to offer financialassistance towards similar first time buyer schemes, rather than assisting aspir-ing home owners, may be seen to be effectively subsidising aspirational pricingpractices while storing up future trouble for those who take up such offers(Northedge 2008).

Inequality

According to the most common measure, the Gini coefficient, incomeinequality in 2005–06 has reached its highest level since 2001–02, and is onceagain statistically significantly higher than that which the Labour govern-ment inherited. (Brewer et al. 2007)

The Labour government, at least until the credit crunch began to bite, mademuch play of being ‘relaxed’ about growing inequality, so long as those at thebottom attain a very basic level of income (Elliott and Atkinson 2008).However, as is addressed below, in our view this perspective seriously under-estimates the serious psychological and social consequences of burgeoningrelative wealth and poverty (Wilkinson 2005; Wilkinson and Pickett 2009).Moreover, the housing market, as it currently operates, can be seen to be botha reflection of and key catalyst for growing social and economic inequality inthe UK. Put simply, the purchasing power of the wealthy inevitably drives upthe cost of housing; a situation that is exacerbated by second home ownershipand, more particularly, buy-to-let investment. This generates a good deal ofsocial closure and social polarization as well as an upward redistribution ofwealth. Thus, the ‘housing poor’ are denied access to a limited but essentialcommodity by the ‘housing wealthy’ unless they are willing to pay increasinglyonerous rents, or become increasingly indebted to meet inflated prices(Zacchaeus 2000 Trust 2005).

In sum, we consider the housing boom, rather than being a product of‘economic fundamentals’, to be a creation of global economic factors –principally an abundance of historically cheap and accessible credit – together



with a variety of national factors, such as changing housing legislation, growinglabour market insecurity, stagnant earnings and inadequate pension provision,as well as a deregulated financial sector and growing inequality of wealth andincome. Taken together, these various factors coalesced to fuel a speculativebubble in the UK property market, assisted by a national culture where marketfundamentalism has been lionized to the detriment of the society as a whole.

The social consequences of inflated house prices

The social consequences of the housing boom have been manifest and serious,undermining the stability, security and, indeed, ‘fairness’ of UK society on anumber of crucial areas,as housing has come to be seen as an investment vehicleand key driver of consumption rather than as a secure place to live within astable community. In addition, government policy on housing and interventionin the market – having broadly facilitated this redefinition of housing – hasbrought with it a range of unintended or unacknowledged consequences(Harvey 2007). In effect, government support for speculative investment andhigh house prices has appeared to act in direct contradiction to the broad thrustof its own housing policy and its much vaunted aims in several other crucialareas, such as the creation of an open, fair ‘opportunity society’, an emphasis oneducation and work as a route to success and upward social mobility, as well asthe centrality of stable families and communities to the ‘good society’.

The ‘priced out’

In 2004 the ratio of lower quartile house prices to lower quartile earningswas 6.3, by 2007 it had deteriorated to 7.25, its worst ever position . . .irrespective of which measure of affordability is chosen, all show a signifi-cant deterioration in recent years, and all indicate significant pressure onfirst time buyers.(National Housing Planning and Advice Unit (NHPAU)2008)

As above, the most obvious group affected by the ‘boom’ has been first timebuyers.According to the various indices, this group has become an endangeredspecies, having been effectively displaced by investors at the lower end of themarket during the boom years and continuing to be priced out across much ofthe country (NHPAU 2008). The estimated number of first time buyers fellfrom 532 thousand in 2002 to 320 thousand in 2005; a 40 per cent drop and a25 year low (Halifax 2006). This occurred as the average income multiplerequired to buy the average home, a key measure of affordability, rose from 2.7to 5.4 between 1995 and 2005, moving significantly higher in some areas as the‘bubble’ peaked (Wilcox 2005). Moreover, our research indicates that the



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negative effects of unaffordable housing are not restricted to those on lowerincomes, but are causing great difficulties for a significant cohort of degree-level-educated young professionals, including some of well above averageearnings, whose life chances are now radically diminished in comparison totheir equivalents of previous generations.As is identified below, this has poten-tially serious implications for the well-being and the stability of families andcommunities, as well as political implications where a generation of youngBritish adults consider that their prospects of accessing a normal life trajectoryin our society have been irretrievably damaged, leading to a burgeoning under-current of despondency, frustration and anger amongst this group.

Exacerbating such feelings of disenfranchizement is the perception that,with the growing disjuncture between house prices and earnings, lifestyle,‘opportunity’ and life chances have become increasingly dependent on prop-erty ownership as opposed to occupation and education. For some, predomi-nantly the skilled and well-educated, concluding that there is little opportunityto realise their ambitions in the UK has driven them to look beyond our shoresas the only option available for achieving their aspirations. This may makesome sense of the fact that our much discussed immigration over the last fewyears has been accompanied by record levels of emigration (ONS 2008b;Sriskandarajah and Drew 2006).

Being honest and hardworking doesn’t pay when you have no opportunityof taking part. Society has disenfranchized me even now I have a career asa lecturer in Higher Education (but still vastly underpaid). The youth oftoday are going to be in for a bit of a shock in later life. China, India and theold Eastern Bloc have much cheaper labour rates and will take almost everylast manufacturing and service job there is. Companies do not have anysympathy for local or national economies and go where the labour ischeapest. Unemployment faced with these cheap imports will and couldcripple us back to the Victorian age. My only hope is that I can stayemployed, save some money and buy a house at the bottom of what I hopeis the biggest crash in history. (Subject AV)

A work colleague bought her house around five years ago with her partner(a solicitor), but the mortgage payments alone take up over half theircombined wages every month, and I’m also glad I’m not in that position.Thesimplicity of my parents’ situation in the late seventies – work hard, get agood job, own your own home and make it somewhere to be proud of – nowseems totally out of reach. (Subject LS)

. . . probably will ultimately emigrate & work abroad, have done so forperiods in the past and thinking about doing this in the next 1–3 years on amore permanent basis. (Subject EM)



Europe (apart from the language problem) offers so much more in afford-ability and standard of living then does the UK. I would not be surprised tosee many others leaving the UK to live abroad. (Subject DB)

The above merely provides a few examples of the widespread discontent,particularly amongst younger people, that is being generated by historicallyhigh house prices and thus the gap between rhetoric and realization (Harvey2007). None the less, these consequences, while serious, reach much furtherthan feelings of injustice, frustrated ambitions and aspiration.

Housing and the family

UK government ministers, and indeed their counterparts amongst the leadingpolitical parties, have repeatedly asserted that the integrity and stability offamily life is sacrosanct and central to the stability and health of communitiesand the nation as a whole.Thus, a good deal of political rhetoric and policy hasthe avowed aim of supporting this institution. None the less, current marketdriven housing policy has precisely the effect of seriously undermining familiesas well as the communities that support them.

Rapidly rising prices and debt commitments could well have associatedsocial effects, for example on the age of having a first child, which are so farlargely un-researched. There have certainly been personal disasters forseveral million households who have found themselves over-extended bythe long-term debt. (Zacchaeus 2000 Trust – Memorandum to the PrimeMinister – May 2005)

In the first instance, as above, young people being priced out of the market hasthe obvious effect of making it more difficult for couples to form householdsand, hence, start families in the first place (NHPAU 2008). This relationshipbetween postponed parenthood and housing is also recognized in the Instituteof Public Policy Research (IPPR) report ‘Population Politics’ (Dixon andMargo 2006). Here, it is suggested that, ‘(a)s people delay family formationthey are often less likely to aspire to home ownership’ (2006: 103). However,we would argue that it is largely cost barriers to home ownership, and a lack ofsuitable, secure alternatives, that are deterring family formation, particularlyamongst young professionals.

The increased cost of suitable housing also almost inevitably entails thatfamily sizes will be more restricted than might otherwise be the case. Rampantinflation has also ensured that the ‘steps’ on the property ladder have widened,making it difficult for existing homeowners with expanding families to accesssuitable homes.

We do not plan to have any children, in part due to the expense of living.Wecannot afford a mortgage AND children. (Subject JE)



I worry about my friends, they all live at home, we all have student loans andwe have no stake in society (particularly the bricks and mortar bit) and existonly to pay the pensions of older generations. The current house pricesystem is effectively a population control policy too. It seems no one isbothered that debt is the new slavery, since the ones who vote have a vestedinterest in keeping house building down, to protect the views from theirwindows, the equity in their homes, and to force us to work harder andharder to pay taxes and live. It seems all the family houses are owned by thesingle elderly, the professional couple or the inheritee; the families withyoung children are squashed up in flats. It’s as if we’re returning to VictorianBritain again. (Subject H)

At the age of 37 we are not on the property ladder and have little prospectof getting on the ladder. Academic pay is low and we live in an area of highhouse prices. We can’t move as my son would have to move school so wecurrently live in a council house. House prices are a huge issue in our lives.We can’t have other children because we haven’t got the space. If we boughta house for more space we would be so stretched financially that we couldn’tafford to have more children. (Subject JA)

Housing affordability issues also place other pressures on family life. It isclear that mortgages are increasingly assessed on the basis of dual earningsand at increasingly high multiples of income, adding additional impetus forincreased working in our already long hours culture (Bunting 2004). Thisbeing the case, evidently, if both parents are required to work longer hours,perhaps also taking second jobs to meet onerous mortgage payments, thenthere is little time left for parenting and family life (Watts 2008; Bunting 2004;Dex 2003). This not only places a strain on marriages and partnerships, andon relations between parents and children, but also undermines the parentalinvestment in the socialization of the next generation that is essential toraising healthy, confident and socially responsible citizens (TUC 2004). Froman economic perspective, the burden of mortgage debt also restricts the con-sumption that our service economy relies upon, which then is inevitablyaccomplished through the incurring of debt that places a further stress onfamilies. Even for those who have been ‘winners’ in the housing boom, thenet effect has done little more than provide an illusion of increased wealth,while the notional increase in the price of the family home has supported andencouraged further borrowing that may expose families to increased financialrisk in future.

The Consumer Credit Counselling Service says that it is not just those onlower incomes that are being hit by higher borrowing costs. Many middleclass families are also struggling to make ends meet because of the strainhuge mortgage payments place on the monthly budget. (Francis 2007)



Overall, if family life, albeit in its various forms, is the bedrock of a society thensecure, adequate and affordable housing is a prerequisite for its stability.

What’s wrong with (private) renting?

. . . not since the golden age of the Edwardians, when 90 percent of allhousing was rented, has the private rented sector looked so attractive toprivate investors. (Association of Residential Letting Agents (ARLA) 2008)

For reasons that will be made clear below, the issue of family and communitystability has a bearing on another feature of housing policy; the cultivation ofan expanded private rented sector as part of the housing mix.

Private renting in nations such as Germany is often cited as an alternativeto owner occupation that might be emulated in the UK to resolve our ownhousing difficulties. This view is reflected in a recent report on the sector,provided by the Centre for Housing Policy at the University of York, whichadvocates the expansion of the private rented sector as a plank of govern-ment housing policy (Rugg and Rhodes 2008). It must be conceded that therevival of the sector since the late 1980s has provided some more flexibleaccommodation for young adults in transition and for students, particularly inresponse to the expansion of higher education (Ball 2006; Smith 2008).However, as above, we would suggest that such an approach to Britain’shousing difficulties is misconceived, due to the fundamental differencesbetween UK and other European private rental markets. As Ball notes,‘(m)any other countries, including most of Europe, have highly regulatedrental markets, with rent controls, legal precedents and security of tenure.Therefore, growth of buy-to-let in the UK is a relatively unique phenomenonworldwide’ (Ball 2006: 5).

In addition, and again in contrast to nations like Germany, UK rentingoperates within a very different culture, and has long been associated withpoor housing and an exploitative relationship between landlords and tenants,not least of all during the ‘golden age’ referred to above. In fact, it was largelythe recognition of the great social and political problems produced by land-lordism, and a laissez faire approach to housing, that led to the regulation ofprivate tenancies and a move towards social/state provision in the mid twen-tieth century (Gauldie 1974; Lawless and Brown 1986). Conversely, thederegulation of the private rented sector, together with the demise of socialhousing, appears to be reversing this process, resurrecting the spectre of pastills, to the extent that private renting can be no more considered a suitableform of housing for families than was the case in the pre-WWII era.

In addition to the high cost and poor quality of much private rented hous-ing in the UK, as noted above, a key issue is security of tenure (Shelter2008). While renting on Shorthold Tenancies may be suitable for those who



specifically require temporary accommodation, they present an impossiblesituation for families, given the realistic prospect of being constantly moved onby landlords seeking to realize gains in a speculation driven market. It could besuggested that this presents us with a potential ‘Cathy Come Home’1 scenariofor the twenty-first century, while there is growing evidence of a transientlifestyle being forced upon many families within the UK.

My partner and I are 30 and have two small children aged 3 and 1. We bothhave reasonably paid jobs, my partner is a carpenter and I am an agencynurse, but we cannot get onto the property ladder and have a secure homefor our children. Our main reason for this, is that while in our twentiesbefore having any responsibilities we decided to travel and work our wayaround Asia and Australia for 2 years, the best time of our lives! But sincereturning in 2003 we have certainly paid for it! Shortly after returning I fellpregnant with our daughter, so we thought then was the right time to buy ahouse, only to find house prices had trebled since we were away! So our onlyoption left (other than getting a ridiculous mortgage 4 or 5 times oursalaries!) has been to privately rent for 4 years, in that time we have beenmoved on 5 times due to people cashing in on their buy-to-lets, have beencharge crazy fees by letting agents each time we have been forced to move.(Subject Z)

While the above represents the most extreme situation in this regard, asexperienced by our own respondents, it is clear that this is far from being anisolated case.

The biggest problem facing tenants in private sector rented accommodationis the chronic lack of security. Six-month shorthold tenancies do not providea stable home for vulnerable families. The National Association of CitizensAdvice Bureaux found that the UK provides the least security of tenure forprivate-sector tenants of the six European countries that it studied. InGermany,51 per cent of people live in privately rented properties,mostly withunlimited contracts; in Spain, where 10 per cent of properties are privatelyrented, tenants have the right annually to extend contracts for up to five years.We are the only country with six-month shorthold tenancies (our italics).

For vulnerable families, the consequences are desperate. A recent study ofhomelessness in Northamptonshire found that, in 2006, no fewer than 17 percent, almost one in five, of homeless families housed by the local authoritywere made homeless because their shorthold tenancies had come to an endand had not been renewed. Councils have to pick up the pieces when thathappens, as people are almost being evicted from private rented homes.

A Shelter report, due to be published shortly, cites the survey of Englishhousing for 2005–6, which found that 38 per cent or just over a third of



people in private rented housing had been in their homes for less than ayear. That is four times the level for social tenants, and a staggering seventimes that for owner-occupiers. Only 5 per cent of owner-occupiers hadmoved within the past year compared with 38 per cent of tenants in privatelyrented property. There is massively greater insecurity for private tenantsthan for any other group.

Behind those figures lies deep misery for many families. They are forced tolive a nomadic existence in private rented housing. As a result, the childrensuffer constant disruption in their schooling and the parents sometimes haveproblems in keeping their jobs, and there is the social disruption of havingconstantly to move home. (Sally Keeble MP, debate on Private RentedSector Housing, from Hansard, Column 482WH 23 April, 2008).

As suggested, families under such conditions cannot provide a ‘secure base’for themselves or, crucially, for the socialization of their children and, thus,government policies in the areas of education, law and order and so on arewholly incompatible with the current state of the private rented sector or itspromotion as an alternative to (affordable) owner occupation or decent socialhousing. Moreover, given the above, Rugg and Rhodes’ claim that ‘(t)here isinsufficient evidence that existing tenancy frameworks are problematic’appears highly questionable at best (Rugg and Rhodes 2008: xiii).

Housing and community

A further effect of buy-to-let/private letting has been its effect oncommunities. It is clear that the ‘mobility’ imposed by insecure tenanciesmeans that the social connections that define communities cannot flourish inareas where there are high concentrations of buy-to-let properties. Thisloosens connections between people, undermining the social capital that oncestabilized community and society, promoted democratic engagement, andsupported people’s feelings of belonging to something beyond themselves(Putnam 2000). Even if we embrace a postmodern conception of community,one that that unties its relationship to place, being moved on is fundamentallydifferent to choosing to move on. Weakened ties and commitment to localityalso make it less likely that individuals will maintain the infrastructure of theirenvironment.

Buy-to-let has caused the physical degradation of the area. Landlords don’tclean up the mess of old furniture and disused pizza cartons, and the stu-dents, many from wealthy backgrounds, contribute no council tax, saysLenton resident Maya Fletcher.

. . . There’s no more feeding next door’s cat or taking in parcels. The gov-ernment talks of cohesion and community. We’ve lost it, she says.



If you want to see the damage buy-to-let is doing to a community, then cometo Bath. We have a population of around 80,000 –20,000 of whom are nowstudents. The effect has been devastating in some places. One area of 2/3bedroom Victorian terraces has been almost entirely taken over by buy-to-let landlords, while the couples and young families who used to buy andsettle in the houses are priced out of the market . . . Insanity! And (mostlyabsentee) landlords are profiting from the destruction of these communities.(Levene 2007)

Aside from the issue of ‘studentification’2 and buy-to-let, other features of thecurrent housing boom have had a negative effect on community and society ina wider sense. The polarization of different groups between high-end ‘residen-tial’ and ‘low-rent’ housing, where the gap between the two has becomeincreasingly unbridgeable, has opened up a cultural and social as well aseconomic chasm (Dorling et al. 2007).Thus, the social closure and division thatis emerging as the housing poor become locked out of the more desirable areasis leading us towards a form of housing apartheid and ghettoization,with seriousknock on effects in terms of educational, cultural difference and an expandingcycle of relative deprivation (Gregory 2009). Moreover, this trend is likely to beamplified by inheritance over time as housing wealth further widens the gapbetween rich and poor (NHPAU 2009). This is one of the reasons why govern-ment initiatives to tackle the UK’s contracting social mobility, by focusing oneducation and aspiration in isolation from wider structural inequalities, iswholly inadequate (Grice 2009). Contrary to government thinking on thesematters, as noted above, difference and relative inequality matter a great deal,while this widening gap cannot be regarded as being distinct from many of thesocial ills that currently afflict UK society, and which are the focus of costlypolicy interventions (Wilkinson 2005; Wilkinson and Pickett 2009).

A bursting bubble

It is clear that the UK housing bubble, as with others across the globe, had runout of steam by late 2007 and, while the extent and timing of any eventualcorrection is incalculable at present, past experience suggests that we will seeprices in relation to earnings return to somewhere around their long-term trendat some point in the future. On the upside, a return to normal levels ofaffordability would go some way to assuaging some of the social issuesdescribed above.However,even where,as is likely, this occurs, the consequencesin terms of negative equity, long term indebtedness and repossession may beendured by many of those who bought during the height of the boom for yearsto come. Perhaps the best way to restore stability would be for prices to beallowed to decline, with government intervention focused on assuaging thesituation of owner occupiers (as opposed to investors) negatively affected by



onerous housing costs and falling prices. However, at present, such a straight-forward approach to the unwinding of the housing bubble seems unlikely.

Housing policy

This Government believes that everyone deserves a place they can be proudto call home, at a price they can afford. Homes are the building blocks of ourcommunities. (Yvette Cooper, Ministerial Foreword to the Department forCommunities and Local Government (DCLG) Housing Green Paper,‘Homes for the Future’, July 2007)

What are the right measures that you take to reward hard work, effort andresponsible risk-taking? (Prime Minister, Gordon Brown, 13 October 2008)

As well as there being a profound inconsistency between housing policy andother wider policy objectives, as implied above, there also appears to be a clearinconsistency with housing policy itself. On the one hand the government’sasserted aim is the assistance of first time buyers and the delivery of affordablehousing for individuals and families (DCLG 2007). However, at the same timeintervention appears clearly aimed at keeping prices high, whilst providingvarious means by which first time buyers can access unaffordable housing atgreat risk to themselves and their families. Thus, efforts are being focused onresisting an inevitable and necessary correction, while sustaining unrealisti-cally high house prices and housing investment as a driver of the economy.Thisview is supported by the concern displayed by the Prime Minister and otherkey players during the economic crisis that mortgage lending be returned to‘2007 levels’ (boom levels) as swiftly as possible, as well as the support forshared ownership and, as suggested, other ‘discount’ schemes (more on thesebelow). This view is also sustained by the Prime Minister’s remarks that ‘theUK problem was not shortage of demand for homes at “the right prices” buta shortage of mortgages “at the right prices for people to buy” ’ (BBC News 13October, 2008). Moreover, while the government has consulted various groupsin the formation of policy, the prevailing view appears to have been informedby the property and financial sector; those most aligned to its narrow economicrather than wider social aims. Thus, the type of ‘assistance’ offered to first timebuyers, rather than providing real assistance, tends to be consistent with theinterests of those who directly benefit from high house prices.

In short, government initiatives circumvent the very obvious fact that thebest way to help first time buyers, those needing larger homes, and the longerterm stability of the market and society, is for house prices to return toaffordable and sustainable levels. Recognition of this logical inconsistency isalso reflected in the fact that government initiatives on housing are over-whelmingly greeted with dismay, frustration and anger from first time buyersthemselves (PricedOut.org.uk; House Price Crash.co.uk).



People don’t trust or want shared equity – regardless of what the scheme iscalled. Let prices drift down to the point of affordability. Propping up thecurrent market price levels, harms first time buyers. (PricedOut.org.uk)

As above, first time buyers are clearly aware that what they need is cheaperhousing, rather than cheaper, easier loans, shared ownership, ‘discount’schemes and stamp duty breaks, all of which are quite rightly viewed as devicesfor sustaining inflated house prices.

Overall, it might be suggested that the government’s apparent willingnessto embrace the property lobby’s analysis and proposals on housing may beviewed within the context of its own mixed motivations on housing policy.On the one hand there appears to be a genuine desire to meet housing need,through new building and a (limited) expansion of social housing. Con-versely, however, there also appears to be a political motivation to sustaincurrently inflated prices, presumably to retain ‘consumer confidence’ and a‘feel good factor’ amongst homeowners, and in tacit recognition of the factthat housing has operated as a major conduit of the debt-fuelled, consumerled expansion that our economy has become increasingly reliant upon inrecent decades.

Further lobbying on housing has also come from private landlords andassociated interests. However, in our view any move to expand this sector, inanything like its current form, would be both grossly unjust and sociallyregressive. While recognizing that there is space for a private rental market inthe housing mix, to provide short-term housing to people in genuine voluntarytransition, curbing the expansion of this sector is essential to ensuring thatsecure homes are available for individuals and young families at affordablelevels. Moreover, the worrying trend for some private landlords to seek toexpand their portfolios by exploiting existing homeowners during the currentdownturn, through dubious ‘sale and rent back schemes’, should be brought toa halt as quickly as possible.

Land tax?

One possible solution to the increasing accumulation of residential propertyfor investment purposes would be a tax on the value of residential landholdings. This would be simultaneously economically and socially advanta-geous, diverting capital from investment in unproductive assets while beingsocially progressive. Together with the retention or extension of current inher-itance tax levels, albeit against the tide of a currently vocal lobby, this woulddeter the current return to landlordism, inequality and unearned hereditaryprivilege that appears to be emerging in the UK, as well as potentially tacklingsome of the remaining archaic vestiges of the latter (Zacchaeus 2000 Trust2005; NHPAU 2009).



Social housing

While ideologically unfashionable at present, perhaps the most prudent use ofgovernment aid to those who cannot buy would be in the provision of goodquality and secure social housing, a fact that, as noted above, the governmentnow appears to recognize to some extent (DCLG 2007). There is little doubtthat the social rented sector has a somewhat tarnished image in the UK.However, it might also be argued that such perceptions are based on the factthat what remains of the sector, of local authority housing at least, is largely the‘rump’ that was not taken up under the ‘right to buy’ initiative. This overlooksthe fact, however, that a good deal of social housing in the UK was highlysuccessful, while a focus on revitalizing the sector would offer a more suitableand socially progressive alternative to any further expansion of privaterenting. Such a move could provide much needed employment in the construc-tion sector as workers are being laid off by private builders, retaining skills andgenerating a genuine boost to the economy, while also beginning to address theUK’s housing crisis where market solutions have clearly failed. Greatersynergy between the private and public sector in terms of housing provisioncould also prove beneficial. For example, a ‘right to sell’, in whole or part, to alocal authority could address a number of the difficulties presented by thecurrent housing market arrangements. This would allow families experiencingunemployment or other financial difficulties to stay in their homes, withoutrecourse to the aforementioned risky ‘sale and rent back’ schemes, whilepotentially producing more mixed communities of both socially rented andprivate accommodation as a step back from the current trend towards increas-ing polarization (Gregory 2009).

Conclusion

It is clear that the main beneficiaries of the housing boom have been investors,the property industry and the financial sector (at least for a time). Conversely,for most of the home owning public the benefits of high house prices have beenillusory, merely encouraging greater indebtedness, while being disastrous forrecent entrants, ‘hard working families’ and the priced out. Moreover, thewhole issue of housing affordability and the manner in which houses areutilized – in particular the use of homes as investment vehicles – raises fun-damental economic, political and, indeed, social questions.

In our view current policies aimed at supporting unaffordable house pricesare socially and economically undesirable and morally indefensible, being farremoved from the principles of ‘fair rules, fair chances, and a fair say for all’. Itis also clear that current prices are ultimately unsustainable, having climbedsignificantly higher in relation to wages than in any other previous UK housingboom, and cannot remain at these levels without a return to sustained ‘risky’



lending practices. At the time of writing, despite assertions to the contrary, itappears that this is precisely what the UK government is attempting toresurrect.

From an economic perspective, less reliance on the housing market as aconduit for debt-fuelled expansion and consumption led growth would ulti-mately lead to greater economic stability and more productive investmentAlso, while the government appears concerned to ‘aid’ consumption bykeeping prices high, would it not be more prudent as well as socially desirableif young families, who are likely to consume most, were able to access cheaperhousing and, thus, retain more of their disposable income, rather than employ-ing the housing market as a vehicle for transferring wealth and income to olderhomeowners who are more likely to salt it away for retirement?

From a political perspective, policy makers, while focusing on the interests ofexisting homeowners and the property lobby, may be underestimating agrowing groundswell of opinion amongst younger UK adults that is vehe-mently opposed to current housing policy.This growing disaffection appears tobe currently expressed, thus far, in latent but strong anti-governmentsentiment. Fuelling this is the perception that the decoupling of wages andhouse prices has seen a collapse in the relationship between education, hardwork and lifestyle, such that life chances appear more dependent on propertyownership than talent, education and/or effort. As suggested, these type ofarrangements in the housing market may be seen to provide the foundationsfor a form of ‘rentier society’, where a privileged minority and their offspringcan live wholly from the efforts of others who have not been so fortunate interms of the timing of house purchase or the caprice of inheritance. Thiscrucially undermines any notion of an ‘opportunity society’, and represents aregression towards the social arrangements that engendered much frustration,despair, crime and social upheaval in the past.

From a social perspective, as suggested, unchecked house price inflation hasa severe negative effect on social cohesion. An increasing gulf between thosewho can afford to live in different areas has divided our society, socially,culturally and geographically, cultivating a fearful and resentful cultureamongst the excluded in the poorest areas (Dorling et al. 2007).Also, the movetowards private renting on current terms has produced areas of poor housingprovision and a nomadic housing underclass, creating a situation where com-munities cannot flourish, families cannot put down roots and, thus, children areexposed to a precarious and unpredictable education and socializationprocess.While, as suggested, this sector has a role to play, in terms of both priceand security of tenure it cannot in its current form be considered as a viablelong term alternative to affordable owner occupation or social housing.

Now is the time for the government to finally disentangle itself from thishousing boom, and to distance itself from maintaining it, not to become



complicit in the financial ruination of more young families. (PricedOut.org.uk)

Finally, at a time when UK government ministers regularly bemoan the declineof family life, well-being and community, and the social stability that theysupport, should they be actively engaged in further undermining them infavour of the narrow, and largely unearned, interests of a highly influential andvocal minority who have imposed this instability on both economy andsociety? It is surely to the long-term benefit of society as a whole to addressour housing crisis by, in the first instance, disincentivizing second and multiplehome ownership – especially where it involves the use of housing as an invest-ment vehicle – together with revitalizing social housing, as crucial first steps insupporting good quality affordable housing for all, whether owner occupied orrented, as a social good. The alternative is to pursue a market driven housingpolicy, aligned with an economy that depends on perpetual credit expansion,and that delivers economic instability, growing indebtedness, burgeoninginequality and social fracture. In short, it must be recognized that our currenthousing market is a key contributor to our so-called ‘broken society’.

(Date accepted: February 2010)

Notes

1. 1966 BBC drama, written by JeremySanford and directed by Ken Loach, whichstimulated a national debate with respect toissues of poor housing and homelessness.

2. While the above relates some fairlynegative comments regarding students, it is,none the less, also clear that the expansionof higher education has swelled theirnumbers and that they must be housedsomewhere. In fact, student accommodation

is presenting a problem for universities andstudents in many areas. However, relying onbuy-to-let/private landlords as the solution,in addition to the impact on establishedcommunities, presents problems both forinstitutions and students themselves, as thehigh rents that are necessary to cover buy-to-let mortgages place an additional burdenon increasingly stretched student finances(Smith 2008).

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no place called home: the causes and social consequences of the uk housing ‘bubble’

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