Job insecurity points to slowdown in home ownership growth

The analysis concludes that the proportion of homes that are owner-occupied will increase by just 0.3 per cent a year, no greater than the growth during the early 1990s recession and well below the annual growth rate of 1.7 per cent during the 1980s. By 2016, the proportion of homes in owner occupation will have risen modestly from 67 per cent in 1995 to 72 per cent.

Yet estimates of future demand for housing rented from local authorities and housing associations suggest that the 40,000 new 'social' homes currently being built each year may be less than half the level required to avoid shortages.

The study uses surveys carried out between 1985 and 1995 among first-time buyers and established home owners in Bristol and Glasgow to explore reasons behind the slower expansion in owner-occupation: These include:

• Job insecurity - between 1992 and 1995 as many as a third of home owner households experienced significant disruption to their employment and/or incomes. These included one in nine with 'permanent' contracts who lost their jobs. One in four owner households surveyed included at least one person who was self-employed or working to a non-standard contract.
• Student loans and tuition fees - two-fifths of first time buyers are graduates (and their partners tend also to be graduates). Most first-time buyers are in their mid-twenties, but the need to pay off student loans and university fees could delay entry to the home ownership sector for between 3 and 5 years.
• Fewer 'right-to-buy' sales - the number of former tenants buying their council homes has fallen.
• Delayed childbearing - first-time buyers are starting their families later than during the 1980s. A growing proportion of owners are single young and older people.
• Greater willingness to rent - first-time buyers surveyed in the 1990s were more willing then their 1980s counterparts to consider renting in future. 

The report, by researchers from the Universities of Glasgow and Reading, argues that increased flexibility and insecurity in the labour market offer the best explanation for changes in attitude among home buyers. Unlike the 1980s, when house price inflation created expectations of capital gains, decisions about ownership in the 1990s were driven by events relating to age, family and employment.

Safer mortgages?
Mortgage lending patterns also showed greater stability, with a decline in the number of buyers with very high levels of debt in proportion to the value of their homes. Loan to income ratios were lower than in the late 1980s, reflecting greater use of credit screening by lenders and fewer borrowers seeking maximum loans.

Standard repayment mortgages began to replace endowment-backed loans after 1992, and a higher proportion of new lending was at fixed rates of interest. Fixed-rate loans were more likely to be used by higher income, existing owners with children who were moving house, than by first-time buyers - as were mortgage protection policies.

Duncan Maclennan, Professor of Land Economics and Finance at the University of Glasgow and co-author of the report, said: "Our surveys suggest that those who have bought their own homes since 1992 have tended to make choices that are more considered and mature. Lending patterns also appear more secure than during the 'boom' years."

Econometric modelling carried out for the study, forecasts annual average house price increases of 6 to 7 per cent to 2016. Construction of new homes for owner-occupation is estimated at an average 160,000 a year.

To meet the projected demand for new housing it suggests that construction rates for social rented housing will need to be raised well above the current level of 40,000 a year. In all another 50,000 to 60,000 homes a year are needed. Future housing shortages are most likely to be felt in the south and other regions that have experienced historically high rates of growth.

Policy options
The report suggests that the Government needs to move beyond its policy of eroding mortgage interest tax relief to consider other measures for creating a sustainable housing market in the next century. For example:

• Taxation policies - eg re-directing the annual £1.9bn of mortgage interest tax relief - could be used to increase stability, especially if Britain became part of the European Monetary Union.
• Regional, urban and planning policies could be co-ordinated to make it easier for housing supply to be more responsive to demand.
• Government could adopt a strategy for promoting private rental provision for young people in their 20s who are heading for eventual home ownership. 

Professor Maclennan said: "The emphasis of UK housing policy can no longer be on expanding home ownership. But there is no clear successor policy to take advantage of greater economic stability to create a more sustainable housing market.

"Future housing challenges will need to be met in the context of increasing global competition and a flexible labour market. But if the present low rate of investment in affordable rental housing continues unchecked, then the opportunity to stabilise the housing market will be lost and levels of social exclusion and homelessness will be allowed to increase."