Is there a risk that the buy-to-let sector may be taking too much of the rap for a wider policy failure to deliver adequate housing supply more generally?
Certainly the language and rhetoric of the government is all about home-ownership. Both the Budget and the government’s subsequent Fixing the Foundations productivity plan are at pains to emphasise the commitment to the government acting as a promoter, enabler, facilitator and, in some cases, part-funder of home-ownership.
This sounds like great news for those who want and can afford to be home-owners, both now and in the future. Doesn’t it? As mortgage lenders, with a proud track record of helping to achieve home-ownership as the mass tenure of the UK, you are never going to find us opposed to measures that help people meet their home-owning aspirations.
But it is a truth universally worth acknowledging that without the most sudden and exponential increase in supply – and, by its very nature, housing supply does not lend itself to that kind of description – housing is going to remain expensive relative to incomes for the foreseeable future.
A cynic might even think that the pro home-ownership rhetoric masks the uncomfortable truth that, even by the end of this Parliament in 2020, and despite significant efforts to increase the flow, we are still likely to be facing an overall house-building deficit relative to overall housing need – across all tenures.
Achieving home-ownership may get marginally easier, but it won’t suddenly become easy. A lot of people are going to be renting – by choice or by necessity – for as far ahead as we can realistically look. And, let us not forget, there are huge swathes of the population for whom private renting is an active choice, not a “second best”.
The private rented sector – and, within it, buy to let – is an entirely normal part of the market. The relative size and popularity of the buy-to-let market will ebb and flow under different market conditions, just as the flow of lending to owner-occupiers will.
The popular narrative may sometimes have a tendency to overstate the potential impact that could possibly arise from a sector of the market that funds only a third of the total private rented sector, and is less than a fifth of the total mortgage market.
And the tendency to focus attention on the recent strong growth in buy-to-let may sometimes neglect the impact of the wilderness years in the wake of the financial crisis when buy-to-let was hit harder than home-owner lending in terms of the reduction in business volumes.
It’s important that, by emphasising its pro home-ownership credentials, the government doesn’t inadvertently seem to denigrate buy to let, and its contribution to the private rented sector. As we remarked extensively in our manifesto, it’s clear that the UK housing market requires housing of all tenures – owner-occupied, private rented, and social rented.
We think it’s also pretty clear that, whatever preferences policymakers may have for one form of housing tenure over another, in the end the physical supply of housing is the crucial factor that will primarily determine what the overall affordability metrics are going to look like – for future generations of home-owners, tenants, and landlords of all types.
We’re pretty sure the government thinks so, too. So it’s important that the main focus of the housing narrative remains on the crucial issue of housing supply, and not a “land grab” from one form of tenure to another. Ultimately, the market forces of consumer demand and funding supply will determine the feasibility and popularity of the tenure mix. We don’t see the UK housing market in terms of “home-ownership or bust”, and we hope the government doesn’t, either.
Still, the fact is that the UK legacy of housing under-supply means that we are where we are – with too many people trying to gain access to too few homes, and pricing of housing that reflects that supply and demand equation. This is reason alone for the Financial Policy Committee (FPC) to take a legitimate interest in the role of both home-owner and buy-to-let lending as a factor in financial stability – an interest that we acknowledge is perfectly valid.
As long as the Treasury consultation on FPC housing market tools for buy to let is conducted on the basis of evidence rather than supposition, as we are sure it will be, we do not see it as a threat. And we understand why the rationale for a “whole of market” policy approach to managing financial stability risks arising from the housing market is up for discussion.
But we do think it vital that discussions don’t pit home-ownership against buy-to-let in some sort of artificially drawn battle line. Both tenures – along with social renting – are important. When it comes to housing tenure choice, there are no saints and sinners – the name of the game needs to be peaceful co-existence.