Dr Desiree Fields
General Election 2015
The UK is heading into the general election amidst a deepening housing crisis. No matter which party takes power, the growth of the private rented sector, and the emergence of an investor class of landlords within it,is an issue that won’t be going away anytime soon. We should all be paying attention to it, and working to build tenant power in order to strengthen tenants rights for a changing housing system.
The UK’s Private Rented Sector is Growing
Today 17% of British households (nearly 4 million households, or 10 million people) live in the private rented sector compared to 10% in 1999. This means that the private rented sector is now about the same size as the social housing sector, which has shrunk from 20% of households in 1999 to 17% in recent years.There are three key reasons behind the growth of the private rented sector.
The first is the decline in council housing (due to privatization and failure to replace units sold), which pushes more poor households into the private rented sector. Indeed the increasing cost of private renting, especially at the lower end of the market, may be due to the inflationary effects of housing benefit.
The second reason behind the expansion of the private rented sector is the massive growth of buy to let landlords. The deregulation of the private rented sector in the late 1980s removed rent controls and introduced shorter tenancy agreements, which enhanced the attractiveness of the sector to investors. But it was only when banks rolled out mortgage products designed for buy-to-let landlords, in 1996, that the private rented sector began to grow more rapidly. In concert with the larger global credit boom, house prices rose dramatically over the late 1990s through 2007, securing large capital gains for buy to let landlords. According to recent figures, £1000 invested in buy to let in 1996 has grown by 1400%, outperforming other investments including commercial property and government bonds. Those keep borrowing against their properties to fund more acquisition, rather than using returns to pay off their mortgages, have seen even bigger profits. Thus a subset of buy to let landlords has become extremely wealthy.
A third reason the private rented sector has been growing is that homeownership is increasingly out of reach in the UK. House prices have been rising faster than earnings, in part due to buy-to-let landlords, who primarily invest in existing housing stock. Thus the nation’s private rented sector is growing because both council housing and homeownership are less and less available, while also becoming a site for investment with the loosening of regulations and increase in financing.
What is to come?
According to recent projections, buy to let landlords will continue fueling the growth of the private rented sector in the coming decades. By some estimates, the rate of homeownership will fall to 50% (today it is 65%) by 2032, while the rate of private sector renting will increase to 35% (from 17% today). State policy appears to primarily be concerned with bolstering homeownership, for example via programs such as Help to Buy, or the Tories’ proposal to expand Right to Buy (in potentially illegal ways), rather than expanding social housing or ways that private sector renters could enjoy greater security, improved quality, and more stability. Buy to let’s big returns are starting to attract bigger investors such as pension and insurance funds. In fact the government set up a task force to stimulate this kind of investment in the private rented sector, in part aiming for institutional investors to put money into build-to-let schemes. In 2013 it set aside £1 billion to provide equity financing to built-to-let developers and builders. In short, the UK is facing the rise of an investor class of landlords without any assurance of improved tenant rights and protections.
Need to rebuild and reimagine the tenants movement
Investors are salivating over the possibility of returning to a majority renter nation, as it was in the 1970s and earlier. The UK has a strong tradition of tenant organizing within council housing. As the private rented sector grows, it’s time to rebuild and reimagine the tenants movement for this changing context. More households in poverty are having to move into private rented accommodation, rent increases continue to outpace income growth, and this is set to worsen in coming years. Tenants must politicize the impacts of unaffordable rents, insecure housing, and poor living conditions, and contest the way we are constructed as a resource for an investor class.
One place to start could be demystifying investment. Tenants have strong understanding of their on-the-ground experience, now let’s connect it to what’s happening on the financial side of things. We need to understand the changing composition of buy to let landlords: what is the difference between Fergus and Judith Wilson and the Abu Dhabi Investment Authority investing in buy to let? Who are institutional investors, and why are they interested in build to let? The term financial citizenship is most often used to describe the ability to get a bank account or a loan that isn’t predatory. We should reclaim this idea to refer instead to democratizing knowledge and understanding of this system of finance that has so much power over our lives today.
It’s time for tenants in the private rented sector to assemble and begin sharing their experiences, set priorities, and galvanize each other to act together to win greater tenant protections. Groups like Hackney Digs in London are at the forefront of organizing tenants in the private rented sector. As tenants start to build power locally, there is also a need to coordinate nationally. Ten million people live in private rented housing–that’s enough for a movement! With so little in the way of regulation in the private rented sector, there’s a lot of space to imagine something different.