Did Thatcher encourage us all to buy houses and then inadvertently rig the game so that we would have to sell them again? I ask this question because her home-owning revolution was launched at the same time as her service industry revolution.
Many people saw Thatcher’s service industry retooling of the UK as an ideal solution to the post-industrial blight that was threatening our nation. I won’t get into the rights and wrongs of this policy, but the sad irony is that service industry employment might not be ideal, when faced with a 25-year mortgage commitment.Our fathers and grandfathers worked in a relatively stable world where having one or two employers for the entire duration of a career, was not that unusual. This stability was often a product of the large barriers to entry associated with industrial production. Plant and machinery typically costs many millions of pounds and it is therefore expensive and risky for a foreign company or government to set up a competing shop. As long as an established UK industry stayed cutting edge, then foreign competition was kept at bay. Unfortunately UK industries have traditionally suffered from low investment, which all but rolled out the red carpet for the competition.
The standardised mantra is that cheaper overseas competition made it very hard for us to continue manufacturing, at such a rate. However, at the risk of being unpatriotic, it has to be said that the Germans, Italians and French managed to continue, so why couldn’t we? Italy has a smaller population and no oil, yet they have now overtaken us in the GDP league table. Regardless of the viability of UK industry, my point is that the employment stability enjoyed by previous generations, made them ideal mortgage payers. Not only were they more able to make 25 years of uninterrupted mortgage payments, they were also more likely to stay in the same location as their employer. This ‘location stability’ also helped to keep the housing market stable because people did not need to frequently relocate and they were therefore able to avoid the modern trap of starting a fresh 25-year mortgage, every few years. They bought a house, paid off their mortgage and spent the last 10 years or so of their careers, in a debt free house.
Today’s service industry environment has created a workplace where careers are sometimes changed more than once a year, often involuntarily. Service industry companies rise and fall, leaving laid off workers in their trail. They do not choose to be mercurial employers but with the best will in the world they cannot often withstand the perils of working in an industry, where the barriers to entry are quite low. Service industries barriers to entry are low because they can often be set up by leasing an office and hiring some skilled personnel. The skilled personnel have usually already learnt their trade in colleges or with other employees, so there is relatively little cost associated with service industry expertise. It goes without saying that when the barriers to entry are low, competition can and will surface from all angles. This is why service industry companies rise and fall so easily. Thatcher dreamt of this kind of dynamic flexibility but did she realise that people who are in and out of jobs or constantly relocating are not ideal mortgage payers?
It is therefore not hard to argue that mercurial service industry employers are not a good bet if you need to make 25 years worth of regular mortgage payments. If we accept this truism, then we must also accept that the average person may well be better off renting for life. If your employment is not secure, then the cost involved in repeatedly being forced to buy and sell houses will slowly milk away your savings and equity. Of course your savings or equity will really go up in smoke if a transient employer causes your house to be repossessed. By way of contrast, if you are renting and you lose a job then it is quite likely that the government will assist you with you’re rent payment or at least move you to another house. The lower costs and flexibility associated with renting may well even assist you to make better pension contributions. It is a sad fact that the struggle to be a homeowner in today’s environment, has left many millions of people unable to save for a pension. The sad thing is that even if you survive the service industry merry-go-round and manage to own a house in your dotage, then your equity is likely to be confiscated to help pay for our perilously under funded state care system. Recent government policy already points to a future, where elderly home owners will be asked to cash in their house to pay for their own care.
So who should buy all the houses? Well, unfortunately the answer is a bit ‘back to the future’ Corporations and the wealthy might well be the only people able to pick up the home buying slack. The surprising resilience of the recent housing market probably points to the commencement of this retrograde step, in that great swathes of the nations housing stock have already been picked up by predatory funds and cash rich buyers. Dark satanic mill conversion anyone?
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Tags: finance, house price news, margaret thatcher, mortgage, News, renting, residential housing, thatcher
Interesting piece on the debate about housing.
On a personal level I was/am very much against the sale of social housing. We are (still?) a rich-ish society & I think the most disadvantaged should have some provision for their housing needs. And the provision of state funded social housing was probably a better bet than state funded BTL empires. (private property rented out via the benefits system)
As to whether there is a future for homeownership well the jury is still out on that one particularly with regard to employment mobility.
A couple of years ago we travelled accross the USA NY to SF via Chicago & Denver by train. And travelled back to NY (12500 miles) by car. We saw a LOT of America – not just the tourist hot spots but ‘real’ America.
And one impression, particularly from the train, was just how many people lived literally ‘on the wrong side of the tracks’ in Trailer Parks. We were on the train chartting to some middle aged, middle class Americans and I said I was surprised at how many people lived in this way. (implication this being the land of the free etc etc). The guy pointed out just how many of these trailers had new / brand new pickup trucks outside them and he told me why: In many states you can drive at 16. But not many 16 year olds have the cash to buy a car. So they do so on the ‘never, never’ (HP). Of course after a couple of years they trade in their $2000 banger for something a bit newer and then trade that in again. By their mid 20’s and needing a new car they find that they have car ‘equity’ of say $8000 but debt owing of say $15000. The only people who will take a negative deposit – if you see what I mean- are the main dealers. So these poor unfortunates, in order to buy a car, are forced into buying new. And servicing a (say) $18000 debt doesn’t leave much money spare for saving up for a house deposit. Hence the trailers, Earl Hickey style.
There is of course a historical social context for this trailer lifestyle – if things don’t work out where you are do as the cowboys in the 1860’s & farmers in the 1930’s did, hitch up your trailer and ‘go west young man’.
Having a Father who was a grocer perhaps Thatcher always saw housing just like all consumer goods. The industry isn’t supported if we all buy one product only and once we’ve got one that’s all we need. No, the consumerist society evolved to the throw away society where things were engineered with short life spans and fashion changes so we keep buying. The more home owners there are, and if they’re encouraged to move for work or betterment then the service industries of estate agents, surveyors, conveyancers, mortgage advisers, banks et al all benefit from the extra business.
I originally thought that the “right to buy” (council houses) was a good thing because it helped people to better themselves by getting on the housing ladder and it helped to shrink the state.
I was wrong.
The failure to replace the council stock that was sold off has led to much bigger problems for Britain. I’m no fan of housing associations and see the buy-to-let brigate as the modern equivalent to the dark satanic mills.
I think right to buy can be a good thing, but only if, as you allude to Brian, the housing stock is regularly upgraded or replenished. For example, on death or going into a home, why must the house be sold to a private concern? Maybe the state should be repurchasing them at market value. With no wait for the house to be marketed etc by an agent and no costs involved it could be an attractive proposition for some. The house would also not remain empty for long.
Of course, the only problem with this is the government and councils. They would I bet be quite glad to do this. But of course there’s the refurb, new carpets, washing machine, health and safety fittings etc. That would double the cost to the taxpayer and end up taking three times as long.
But if they just stuck to the bricks and mortar there’d be no problems.
Given the high cost of renting and poor security it offers, long term renting will spell alot of trouble for people as they approach retirement.
How for example do you continue to pay rent once retired ?
By having a pension pot at least 50% larger than you would have needed if you owned your house outright.
We are already questioning if people retiring in 20 years time will have enough tucked away to live on, never mind continuing to have to pay for a roof over their heads.
Mark: Many people won’t actually have a choice. UK incomes have been artificially high for some time and long term they are likely to fall substantially in the drive to make British output more competitive. British people think they have a right to earn 10 times more than the people who currently manufacture our goods. There is actually very little reason for this phenomenon to continue.
Banks do not generally give mortgages to low paid workers, so the majority could well be stuck renting no matter what they would prefer to do. Once upon a time we built millions of council houses to ensure that low paid workers (who were generally ineligible for mortgages) had a reasonable standard of living. This safety net has been sold off and we might be wise to re-install it
It would be nice to think that house prices and land would fall to the same extent as worker incomes but it never happened in the days when we last had a poor distribution of wealth. The wealthy used to covet large tracts of land and property because they realised that their workers would have no choice but to pay a large portion of the salaries back to then in rent. The desirability of land and property (to the wealthy) therefore put a floor under the value of property that rendered it beyond the reach of the average worker. Given the chance the wealthy would like to reintroduce this semi-feudal system
I can only see one way of avoiding this regression ….I would like to see the government start a 2 million council house-building program. They could actually make them nice this time and it would solve our immediate unemployment problem while our economy partially reverts to a pre-Thatcher model. One of the main benefits of council houses is that they prevented the working classes being enslaved (via unfair rents) to their employers. If we built enough of them the extra supply of houses would have another benefit… House prices would be subdued enough so that the middle classes could buy a family home that didn’t leave them enslaved to the mortgage company.
Have you noticed how council houses have a nice ostion on the edge of villages, overlooking fields ? Just an observation.
Either building a fresh batch of council houses or making more land available for people to build their own houses on would be the obvious choice for a government looking to help it’s economy.
Unfortunately this governement seems to be doing all possible to re-inflate an asset bubble with borrowed money – at any cost.
Remember the scandal a couple of months ago. It was suggested that struggling developers should sell of their unsold stock to Housing Associations – who promptly said that much (most of) new build housing stock was not of sufficient quality/ space to be rented out by HA’s.
So all these people who struggled to buy overpriced rabbit boxes have turned themselves into 25+ year mortgage slaves. And had they held out for Council House (by being a Somali or whatever!) they would have a better & cheaper home. Its not only the state of Denmark that STINKS!
Yes Mark. Releasing land would help to deflate that bubble with dire consequences for the banks.