Homes or investments?

This content applies to England only.

House prices in England tripled in the ten years to 2007. With a crisis of confidence in pensions and the bursting of the dot com stock market bubble, more and more people have come to believe that the prudent way to invest for the future is to buy property.

But in light of the current property market crisis, is this faith misguided? And is it not right that we should view property first and foremost as providing homes for people?

Today's property market crisis

Today, the credit crunch is upon us, with both mortgage arrears and repossessions rising sharply. Not only does this challenge our society's faith in property as a solid investment, but it also raises wider questions about the function housing plays in our society. Should property be seen principally as a source of wealth and financial security, dividing the haves from the have nots? Or is it better to view property as performing the social function of providing decent homes for everyone?

Shelter believes everyone should have a home and that current housing policy needs to change to make this a reality.

• More than 14.5 million households are now owner-occupiers (70% of the population). [1]
• Home ownership is the tenure of choice for the majority of people.
• In 2007 repossessions rose to 27,100 and the number of mortgages more than three months in arrears rose to 129,800. [2]
• The UK is now more polarised by housing wealth than at any other time since the Victorian era.

The origins of the crisis

Home ownership in England has been rising since the 1970s, supported by a series of pro-home ownership government policies, such as the Right to Buy (for council tenants) and the Right to Acquire (for housing association tenants). More than 14.5 million households now own their own home (70% of the population) and home ownership is the tenure of choice for the majority of people.

Since 1992, UK house prices have been rising rapidly for a number of reasons: [3]

• A long period of economic growth: average growth has been around 2.5% for 15 years, increasing incomes and confidence.
• Low interest rates: this has been a significant factor increasing demand for houses, given most UK mortgages have variable rates.
• Increasing number of households: due to various factors including an ageing population, smaller households and increased levels of net immigration.
• An increase in the number of people buying second homes.
• Increased availability of mortgages: banks have relaxed lending criteria making it easier to borrow higher salary multiples; new types of mortgage have also been introduced such as interest-only and 50-year mortgages.
• Buy-to-let market: more people have been buying houses to let out, in the hope they will not only benefit from capital gains but significant rental income too.
• Fundamental shortage of supply: the main reason for rapidly rising house prices in England is the fact that supply is failing to keep pace with demand.

With house prices rising so rapidly, a consensus has grown that property is a solid investment for the future. Increasing numbers of people have sought to ‘get themselves on the property ladder’ by any means necessary, encouraged all the time by a raft of new property programmes, magazines and websites.

With house prices rising faster than incomes, buyers have had to borrow increasing multiples of their salary, stretching themselves to the limits of what they can afford. Now, with the credit crunch biting and interest rates rising, many borrowers are struggling to meet mortgage repayments, with both arrears and repossessions rising sharply.

Shelter's view

Shelter believes that everyone should have a decent and secure home. For those who can afford it, home ownership remains a good option, but for those on low incomes, it can be a very insecure path to follow, pushing households to the limits of what they can afford, and risking repossession and homelessness in the process.

Shelter is not opposed to private ownership and investment, but we believe more needs to be done to ensure everyone has a decent home. There need to be more affordable homes alongside more family-sized accommodation.

Above all, we believe the main solution to the current housing crisis is to build more social rented homes, which would help people currently living in insecure and unfit housing into decent homes.

[1] Survey of English Housing Preliminary Results 2006/07, Communities and Loval Government, 2007

[2] Council of Mortgage Lenders, 2008

[3] SOURCE: www.economicshelp.org.