ONE of Lady Thatcher’s greatest legacies was to increase home ownership, allowing families to buy council homes at a discount. Her right to buy policy, while only one of several reasons why homeownership jumped in Britain in the 1980s and 1990s, nevertheless played a central role in changing the aspiration and culture of the UK public, as well as enabling many more people to own assets.
But there was a big difference between Thatcher’s chosen way of building a home-owning democracy and that pursued far less successfully by others, including Bill Clinton and George W Bush in the US, and now George Osborne here in Britain. Thatcher’s model was sustainable: while council house buyers enjoyed a big discount, they still had to budget carefully, get a mortgage, save up for a deposit and act responsibly.
By contrast, Clinton and Bush both heavily encouraged the disastrous sub-prime lending boom, using legislation and the government chartered mortgage agencies to promote their agenda. Soon enough, millions of folk who couldn’t really afford to buy were being offered cheap loans. The policy, as we all know, ended in tears and its implosion triggered the financial crisis. Osborne’s decision to subsidise home buyers with his help to buy scheme, a perversion of the original Thatcherite ideal, is far too close to the sub-prime model for comfort.
But the reason why Osborne is trying to kick-start home-buying in this way, however, is that slowly but surely, Thatcher’s home-ownership expansion is going into reverse. The number of owner occupiers rocketed from 9.68m in 1980 to 12.782m in 1990, the year Thatcher left office. It continued to increase until 2005, when it peaked at 14.791m. It then started to fall in 2007 and was back down to 14.388m in 2011-12, the lowest since 2001.
But these are absolute figures: since then, the total number of households has gone up substantially. The latest figures show that the share of owner occupiers fell to 65.3 per cent in 2011-12; this is down from a historic peak of 70.9 per cent hit in 2003. The last time home ownership was this low was in 1987. The situation is still not as bad as it was in 1980, when just 56.6 per cent were homeowners, but the trend is ominous for those who believe that property ownership should be widely dispersed to ensure that as many people as possible own a stake in our economic system.
The recession hadn’t even begun by 2003, and credit was still easy to get hold of. The truth is that many factors explain the decline in home ownership – for example, more people live alone and are therefore single-earner households, making it harder for them to compete with two earner-households – but they all boil down to two fundamental reasons.
The first, demand-side issue is that interest rates are far too low, automatically pushing up property prices. The second, supply-side issue, is that far too few homes have been built in recent years. These two forces have kept the house price to earnings ratio well above its historical level, pricing out millions.
The solution, therefore, is simple: we must build many more homes. Developers face perverse incentives, including that to land bank, because land prices keep rising and so little land is freed up every year for development by the authorities. Without a radical liberalisation of the rules, first dreamt up in 1947, and a substantial reduction in the price of land available for housing, one of Thatcher’s key legacies is in danger of being slowly undone. Not only would this be a tragedy for the millions frozen out of the housing market but it would also be a cultural catastrophe for Britain.
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