Why the home ownership dream ended

Here is a picture of the flat where I was born.  Randolph Avenue in Maida Vale, a former red light district fallen on good times.

It was a slum in 1958 when I first emerged there, in a rented ground floor flat. Now the same flat is occupied by the head of Benetton Europe (not actually this front door, in case you are casing the joint).  I can’t even afford to sleep rough there. There’s the problem.

Now, there are some predictions I make where I don't really want, for my children's sake, to be proved right. But unfortunately what I said in my book Broke: How to Survive the Middle Class Crisis is all too true.

As it said in the Daily Telegraph this morning, home ownership in the UK is at a 25-year-low - not back to the levels before Margaret Thatcher came to power, determined to shape a property-owning democracy, but almost.

Home ownership is down to 65 per cent, its lowest level since the 1987 stock market crash, when Nigel Lawson was Chancellor.  No coincidence this, as I will explain.

Also a third of all homeowners are now over 65.  The young are being priced out, and flung into the not very tender embrace of the private landlords.

Does this matter?  Well, I think it does.  It means a loss of independence, a dependence on the whims of landlords, and continuing rental costs carrying on for the rest of your life.  

There is a peculiar resistance to home ownership on the left, is if renting was somehow ideologically purer.  I don't see it - and there certainly is no insulation from the rocketing costs that way.

The 30-year housing bubble has also led to huge additional costs for taxpayers, as the Telegraph report explains:

"The figures also disclose that there has been a significant increase in the number of people who rent their homes claiming housing benefit.  Over the past five years, the proportion of people claiming benefits who rent privately has risen from 19 per cent to 25 per cent, while in the social housing sector the figure has risen from 59 per cent to 66 per cent."

But I take issue with some of the coverage of the bubble.  It is always written as if this was some kind of betrayal of the objectives of the Thatcher government.

It isn't.  It is a direct result of the poor decisions they made then.  Three in particular:

1.  Debt.  The idea that rising home ownership could be built sustainably on unrestrained debt, an idea that is popularly supposed to have been embraced by Margaret Thatcher after persuasion by Nigel Lawson, was always wrong.  If there is no limit to the money available for mortgages, then it will always tend towards inflation - and the shrinking homes and the lengthening mortgages are an inevitable result.  We have seen 40-year terms and are well on schedule to end up with the enslaving Japanese-style grandparent mortgages, paid off by the generation after next.

2.  The Corset.  The Corset was an instrument in the 1970s and before which regulated the amount of money going into the mortgage market, keeping house prices as level as possible while still allowing housebuilders to make a profit.  It was abolished by Sir Geoffrey Howe in 1980, as a direct result of the end of exchange controls - but nothing was put in to replace it.  As far as I know, nothing was even considered.

3.  Big Bang.  Yes, the City needed reform, but the free-for-all ushered in by the flawed reforms presided over again partly by Lawson, with help from Cecil Parkinson, inevitably unbalanced the economy.  The avalanche of money going through the City inevitably got recycled into bankers bonuses - which in turn got recycled into rising house prices.

No, I don't include the failure to build homes as one of the main causes - though clearly it hasn't helped.  When more than 60 per cent of new homes in London have been snapped up by foreign investors, then you have to look elsewhere for the cause - which is, as I say, the unconstrained growth of the mortgage market.

It was based on a peculiar, fundamentalist view of market economics.  In the context of the 1970s, it looked creative.  But from the benefit of three decades later, you can see that - however much you believe in free and open markets (as I do) - the fundamentalist idea that markets produced real prices when they are left to themselves is as damaging as religious fundamentalism in its own way.

And just as destructive.  Unless we do something about it, it will destroy the dreams of the next generation, constrain them in jobs they hate because it is all that will satisfy the demands of Mega Landlord PLC.

More about how we got into this mess, a series of blow by blow accounts, in Broke.

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