Housing Market Resilience
Over the years, the UK housing market has been characterised by soaring property prices, supply-demand imbalances, and cyclical fluctuations driven by economic factors and government policies. Yet, despite periodic warnings of a looming crash, the market has exhibited remarkable resilience.
Even with the cost of living crisis, the rise in inflation and interest rates, war in Europe, and the proceeding Covid epidemic, UK house prices have remained surprisingly resilient. Every year, analysts have forecast ‘a potential crash in the UK housing market’, but it has not happened.
In two recent blogs, we looked at 'The 18 Year Property Cycle', and how ‘The Rich Get Richer’, to explain why the UK housing market has not crashed…yet. This post again delves into the dynamics of the UK housing market, highlighting how the abundance of private rental properties also serves as a safeguard against market instability and potential crashes.
The Abundance of Private Rental Properties
At the heart of the UK housing market lies a vast network of private rental properties that represent a substantial proportion of the housing stock. We now find ourselves in a situation where 1 in every 21 adults in the UK is a landlord. The most recent data shows the size of the private rental sector has doubled since 2004, peaking in 2016, and has remained roughly stable since.
This abundance of rental properties acts as a stabilising force within the market, mitigating the risk of sudden price crashes by providing a buffer against fluctuations in demand and supply.
Inflated House Prices Caused by Landlords
In the book ‘Against Landlords: How to Solve the Housing Crisis’ by Nick Bano, a barrister specialising in renters’ rights and homelessness law, Mr Bano explains how the dominance of private landlords in the UK housing market is a significant factor contributing to the rise in house prices. While there is a general perception of a housing shortage, the reality is more nuanced. We actually have an abundance of housing units – the problem lies in affordability, or increasingly high prices, and the dominance of private landlords in the housing market is a significant factor contributing to this.
Historical Perspective
It is important to acknowledge that the UK wasn't always plagued by an unaffordable housing market. In the post-war era, the Government implemented rent control measures which capped rent increases, offering tenants some stability and protection from exorbitant pricing.
Additionally, a significant portion of the housing stock was under public ownership, managed by local councils which provided a more affordable alternative to privately rented accommodation. By the 1980s, the private rental market sector had shrunk from nearly 60% of dwellings in 1939 to just 9% in 1988.
The project of ‘municipalising’ the private sector enjoyed cross-party Government support. With landlords desperate to sell, and councils having access to preferential public loans and grants, there was not even a need for compulsory purchases, and social housing stocks could grow cheaply, sustainably and without a single new brick being laid.
In 1973 and 1974 alone, Camden Council acquired more than 4,000 privately rented homes through voluntary sales, and there was an upswing in owner-occupation. In fact, the first use of the word ‘gentrification’ in the 1960s was intended to describe this phenomenon of replacing the squalor of urban private rented housing with a new class of younger owner-occupiers - instead of signifying the demise of social housing and the elimination of the urban poor as it does today.
The near-death of landlordism was one of the good news stories of the last century, but the task that Margaret Thatcher and her successors set themselves was to undo that progress. Rent control was phased out in the 1980s, and large-scale council house sales led to a decline in social housing.
The consequence? A surge in private landlords and a dramatic rise in rents. The present day system was designed to ensure that the letting of private property would again become a profitable endeavour.
It should have been obvious to everyone that a move that had achieved such positive effects by the collapse of private rentals would produce equal and opposite consequences as it was rebuilt.
How Landlords Cause Housing Price Rises
The present dominance of private landlords has fundamentally altered the housing market. The UK has a comparable amount of housing to the Netherlands, Hungary or Canada, and our housing stock far exceeds many more affordable places such as Poland, Slovenia and the Czech Republic. It is impossible to make a case for unique levels of housing scarcity in Britain, in comparative international or historical terms. What has changed for the worse is not the amount of housing, but its cost. And cost, in turn, has a great deal to do with the landlordism that is at the heart of the present crisis.
Build More House!
Mass-scale house building isn’t necessary – there is already enough housing stock, but we need to learn the wisdom of the last century when it comes to landlordism. The pretence that there is an extraordinary shortage of homes is simply untrue, as the international and historical data shows. Government household and housing stock data show that the UK has a surplus of dwellings relative to households and that this surplus has grown from 660,000 - 1.23 million homes between 1996 - 2019:
The pro-house building argument has always seemed flimsy, its strange logic is that profit-driven developers would build homes to devalue them: that they would somehow act against their own interests by producing enough surplus homes to bring down the average price of land and housing. That would be surprisingly philanthropic behaviour!
Conclusion: Landlords Cause House Prices Rise
According to Bano, letting private property not only drives up house prices, it also inflates land values making new state-led building projects unfeasible. Solving the housing crisis does not need to involve asphalting green belts, and destroying precious amenities to build hundreds of thousands of new homes. We simply need to acknowledge that landlordism is the reason for ever-increasing house prices, defined by the staggering rental yields that our unregulated rental market allows.
Landlords are entitled to ask for whatever rent they think they can get, and as a consequence, housing prices continue to go up despite a net gain in housing stock.
Opponents of rent controls believe that rents should be set by the market, which tends to mean monopoly prices. The average private rent in the UK stood at £1,238 in February 2024 - £102 or 9% higher than a year earlier. They believe in a mechanism that necessitates rising poverty, and in which the already wealthy thrive on other people’s money; The Rich Get Richer.