Hold the champagne, the housing market upturn is meaningless without rental reform
The recovery in the UK housing market recovery is redundant while the rental sector remains in pieces, writes Purplebricks CEO Sam Mitchell
The UK housing market has enjoyed its best few weeks in years since the start of August.
The Bank of England’s decision to cut interest rates for the first time since 2020, combined with news that house prices are rising at the fastest rate since January, are clear signals that the market is now on a path to recovery. Add to that the political stability of a new government, and the conditions are right for buyers to move ahead with purchasing decisions that they’ve been putting off for months. In London, our data shows that house prices rose by 0.6 per cent to an average of £523,134 in July.
But we should put the champagne on ice for now. To celebrate a buoyant sales market while the rental sector continues to deteriorate at an alarming pace would be completely senseless. The positive signs of recovery will all be for nothing if we don’t fix it.
The housing crisis as it stands
The economics of the rental market simply do not work. There are now more than 20 tenants looking for accommodation for every home on the market, causing rents – which are already at historic highs – to continue to rise. In London, rental prices are increasing at their fastest rate since 2006, with a 9.7 per cent increase in the 12 months to July according to the ONS.
This dynamic upends some of the fundamentals of the housing market. In nearly 25 years in the property industry, I could have never imagined a time where renting was aspirational and getting on the property ladder was near impossible with only one income stream – but that is the situation we are in. For first-time buyers, the market is unequivocally broken.
Meanwhile, prospective homeowners are facing the worst conditions in 70 years, locked out of homeownership as a direct result of the crisis in the rental market.
Spiralling costs make it impossible for renters to save for a deposit, but what really compounds the crisis is the lack of housing stock. For the root of the problem, we must go back to the Thatcher government’s mass sell-off of social housing during the 1980s. The unintended consequence of that policy was to put immense pressure on the private rented sector. In the past five years, that pressure has become unbearable.
At the same time, private landlords have been hit with extra stamp duty, loss of interest relief, rising rates – all of which have disincentivized them and caused further, harmful decreases to housing supply. The combination of poor supply and soaring demand is catastrophic for aspiring homeowners, who are trapped in a vicious cycle.
The solution?
The solution is clear: a dramatic increase to social housing stock. The new Labour government now needs to be bold enough to follow through with its promise to “get Britain building”.
Failure to meet housebuilding targets has become a cliche, with 16 different housing ministers since 2010 managing to pass the buck or find a convenient excuse. The new government has an opportunity to make a difference, but it must adopt radical policies that address the issue head on and fulfil its pledge to build 1.5m homes by 2029.
For example, if we’re to continue the trend of selling off council houses, then we should build two for every one sold. Specific measures to support first-time buyers, such as keeping stamp duty exemptions at the current threshold and offering landlords capital gains tax exclusions if they sell to tenants, are crucial for lowering the barriers to homeownership.
If first-time buyers continue to be excluded from the recovery in the housing market then we’re missing the point entirely. It is completely redundant if it only benefits those already on the ladder.
Sam Mitchell is the CEO of Purplebricks