English Model of House Tenure - Essay Example

Introduction England’s model of house tenure is currently under relentless twist. The housing market has constantly been volatile, and this volatility has become a companion in the United Kingdom economy. The housing market volatility has affected the country’s economic policies at the uppermost level, among them the resolution not to be a member state of the euro zone in 2003. The country has experienced four boom and broken series since 1970s and the country is yet to change its record and stabilize the housing market system as it has not learnt on the past busts. The changes in tenure shares and key housing market indicators over the past few decades The housing market in England has persistently experienced boom and bust series in the past few decades. The boom and bust series alter housing choices and increase the risk. They propel mortgage arrears and repossession rates, restrain housing building capacity and augment intergenerational inequality. The housing system has been centered on home ownership. Since 1950s, administrations of all parties have sponsored ownership as the tenure of choice, as well as a lynchpin of an asset owning democratic organization. By the beginning of 1970s, fifty percent of all households owned their own homes. Home ownership exceeded seventy percent at its peak, making home ownership in UK greater among the developed countries. Several factors are responsible for home ownership growth in United Kingdom, among them favorable financial and legal institutions. For instance, the types of tenure facilitate individual ownership of flats more easily than in some countries like Switzerland. The legal system proffer high security levels to lenders, making it easy to take back properties when borrowers have failed to pay, this apparently increases their willingness to lend (Treasury, 2003, pg 29; Benito, 2007, p 324). Regional house price increases: difference from UK average, 1969-2009 Mortgage finances became readily available to low income households to have access to a wide variety of household types and wider property range, following the 1980s deregulation of the mortgage market. The government policies also boosted house ownership as borrowers were allowed to claim for tax reliefs on their mortgage interest payments. However, the tax relief was eliminated in 2000, though money from the sale of owner occupied possessions remains exempted from capital gains taxation. Home ownership type has been attractive resulting from the continuing rise in real house prices. Additionally, there have been substantive shift from public to private housing from government to government through the Right to Buy option introduced in 1980. More than two million council houses were sold out at a markdown to their occupiers under the Right to Buy scheme. These houses currently make up more than ten percent of the present collection of owner occupied residences (Meen, 2005, p 953; Meen 2008, p 79). Nominal and real house price inflation rates Sources: department of communities and local government and government and author’s calculations The trend in home ownership reversed in mid 1990s due to the prolonged increase in house charges, resulting to more people becoming charge out of the asset market. The levels of home ownership were falling prior to the financial crisis of 2007 especially among the young families. Barriers to home ownership were driven by continuing restraints on the supply of finance credit and finance rationing through tight lending terms caused by the crisis. Home ownership tenure remains the dominant tenure in England, although the tenure is currently under strain (Meen, 2008, p 80). The gap created after the reduction in home ownership tenure has been filled by the private sector. Private renting system has stabilized over the years after deregulation of rents and the emergence of non secure tenancies. There have been advancements in mortgage credit terms accessible to private property-owner under the buy-to-let (BTL) scheme, thus encouraging investment in rental properties. Demand for this type of tenure has been increasing from 1990s to 2000s as a result of changing labor market, increase in student population, increasing numbers of people charged out of homeownership as well as encouraging demographic and social drifts. By 2007, private rented housing tenure accounted for 12% of the housing collection in England (Robinson, 2007, p 98). Although the private rent tenure is widely embraced disproportionately by students and mobile people who require short term accommodation, it is a varied sector in terms of income and nature of renters. The social rented housing tenure currently houses less than 20percent of the UK population. This mode of tenure targets inhabitants with the most need, and the decline in this kind of tenure is attributable to stock loss through the Right to Buy initiative ; highly surpassing the rate of new build. New build has declined as it is given low priority by consecutive administrations. Home ownership by age group in England Using economic theory and empirical evidence, what considerations have led to a fall in home-ownership? Home ownership levels have fallen considerably since 2003 (70.9%) to 2009/10 (97.4%). The numbers of owner occupied have also reduced from 2005 to 2009/10 by 265,000 in numeral terms. The greatest shifts of households between tenures are from owner occupied to private renting sector. In 2009/10, 97,000 households shifted from private renting sector to owner occupation, while 168,000 families shifted from owner occupied to private rented sector. In total, 1.8 million families shifted in 2009/10, signifying a 600,000 drop on 2007/08 movement into or out of owner occupation. This is a certain reflection of the inability of households to access credit finance and higher levels of negative capital in the emergence of the banking predicament and housing market slump. There are several fundamental factors that have caused the decline in home ownership. The affordability of owner occupation has declined over the long term. The reason is that standard house price increment outdid the average incomes from 1970s to 2000 in most areas of United Kingdom. The earnings of high income earners have risen at a quicker pace than that of others since 1980, resulting in massive strain on people at the margins of home ownership. Further, there has been a continuing decline in the number of first time purchasers, as well as the rates of owner occupation among younger people and households since late 1980s (Meen, 2008, p 81). Annual house price inflation, % Another empirical and economic reason for the decline in home ownership is the banking crisis that happened in 2007, radically changing the whole of the UK mortgage market. Since 1990s, England experienced an unmatched expansion in mortgage lending with encouraging terms fuelling the housing market until the set in of the 2007/08 depression. The recession upshots were unsustainable, and lending became stricter particularly to people who with impaired credit history, low and unsecured earnings, as well as people with small deposits. High loan to value (LTV) loaning was embraced since 2007, and availability of mortgage finance is unlikely to get back to the levels it was before the 2007 banking crisis. The reason is that there have been fundamental alterations in consumer regulation and restrictive capital requirements on loan providers (Benito, 2007, p 324). Household formation is probable to be quickest among single adults and households of 65 and above years. This is in line with diminishing rates of home ownership since, neither group tending to obtain home tenure in such large numbers as “conservative” families. Migration is another factor that results in the decline of home ownership. Most of the recent migrants prefer to live in private rented sector than buying a home. This economic factor has been a major driver in reduction of home ownership, as there were 2.1 million granted entry visas by the home office in 2010. The nature of employment has heavily contributed to the decline in home ownership rates. The current trends in employment are ever changing, resulting in more labor mobility, less secure full time employment, more part time jobs, casual and self employment. This has eroded job security among the populace. Apparently, the private rented sector becomes more suitable for a rising proportion of workers (Heywood, 2011, p 64). Personal indebtedness is another aspect resulting in the decline of home ownership in the UK. Resulting from the 2007 banking crisis, the high levels of unsecured liability will make it tricky for a large number of the populace to get credit financing or remortgage in case they are already home owners. Another correlated setback is negative equity and credit arrears that may result in increased reclamations. This makes future home ownership difficult for citizens who lose their homes due to reclamation. There have been increases in the student debt from 1990s, which affected the age at which the first time home buyers enter home ownership plans, as well as their propensity to do (Heywood, 2011, p 68). The element of taxation also has resulted in home ownership rates. The balance of direct taxation has changed in the past twenty years, bestowing favor on landlords and taking it away from owner inhabitants. The 2011 financial budget has special considerations for investors in the private renting sector, which widens the balance of taxation further. The system of befits is discriminatory between renters and land owners, where owner occupiers obtain less than ten percent of the whole aid offered to renters in the form of cash. Increased longevity, collapse in defined occupational initiatives and insufficient saving and pension provision tend to encourage disinvestment in the housing sector among older groups of people. This is made worse by the increase in cost for the elderly. The increment in elderly care cost is likely to result in a crisis in financing pensions and care for people without housing equity (Nygaard, 2011, p 73) The property market cycle is another vital factor that plays a role in reduction of home ownership rates. In some instances during a period of rising prices, some buyers hurry to purchase as they anticipate that prices will rise further. This results in an increase in home ownership. However, rising property market sometimes takes prices beyond the range of potential buyers, resulting in leveling off of home ownership. Falling home prices may result in delay for prospective first time purchasers as they anticipate that prices may fall further. Price falls can lead to negative capital for current borrowers who may go back to the private rental sector. The net outcome of the assets market cycle on home ownership depends on the levels of assets prices and incomes prevailing in the market and the phase of the cycle the market have reached. Other factors that come into play include purchaser confidence, competition, rate of innovation in product improvement, as well as the degree of flexibility in mortgage loaning conditions (Benito, 2007, p 324).  Identify, analyze and illustrate likely factors affecting home ownership attainment in the near future for different sections of the population. Home ownership in the future is likely to be impacted by various factors across different sections of the population. The factors may be related to each other. For instance, employment factor may influence the capacity to save money for home ownership purposes. Availability of land, planning regulations, inelastic supply of labor, and planning regulations are likely to result in housing supply constraints (Barker, 2006, p 26). These factors are likely to affect house prices that may respond quickly to changes in housing demand, whilst housing supply changes more steadily. This partly expounds on why UK experiences short term cycles, with prices originally overshooting or undershooting their long run equilibrium position in reacting to a demand shock before supply changes. Supply side shocks like a change in planning rules may result in a more slow adjustment in house price to their new long run equilibrium level. On the other hand, home ownership levels may increase slightly from the present levels, especially because of the enduring demand of cohorts moving through their housing careers. Home ownership may also increase as the government looks for ways of transferring responsibility to the private sector (Green and Wachter, 2005, p 96). Nominal and real house prices Household income is another variable that will determine home ownership in the near future. The reason is that income determines an individual’s capability to purchase a home or obtain a mortgage. For instance, foreign born people who have arrived in England in the past five years have the least gross hourly pay. Apparently, this gives them the least ability to buy and own homes (Miles, 2004, p 90). Demographic factors will also influence home ownership patterns in the distant future. The family size at the time of migration will influence home ownership tenure. Large households with lower earnings may be incapable of buying a suitable home, and will be reliant on private renting or social housing, if permitted. Elderly people may also be eligible for social housing as vulnerable individuals. By centering on the elements of the different groups depending on the country of birth, several aspects emerge, which will influence home ownership pattern. The age of the family members and the number of dependent children will largely influence homeownership. For instance, Italy, Ireland and Jamaica born populations have a high percentage of elderly among them. The likely relocation of these groups to the UK happened in 1950s, and immigrants who arrived as adults will be old to qualify for social housing. Family size among foreign born populations like Somalia born, Afghanistan, Pakistan and Bangladesh have families with five or more children. Such groups may be unable to acquire homes since they have lower incomes and high dependence (Meen, 2005, p 956). Employment conditions will also have an impact on home ownership. For instance, agency work or provisional work contracts may influence housing decisions, with people with short-term work opting to live in private rental housing. Employment that is insecure can affect housing ambition and restrict a person’s capability to buy a house. Other forms of employment have housing tied in the job for workers, making it hard for them to acquire homes. Tied method of housing is mainly offered to armed services, health and social care, domestic and hospitality sector workers. The immigration status influences numerous migrant groups the entitlement to home ownership. The length of residency in the UK will have an effect on home possession in the near future among the migrant groups. Longer established emigrants are most probable to have gotten British citizenship or settled status, which affords them entitlement to home ownership. Additionally, long established emigrants will have re-established their careers, as well as having accumulated adequate savings to purchase a house or secure a credit. The reason is that the length of residency enhances the possibility that emigrants will shift from private rental accommodation to become owner occupiers or social renters (Stephens and Whitehead, 2005, para 5; Robinson, 2007, p 100). The emigrants’ objective also determines the attainment in the near future among migrant population. Rutter and Latoree (2009, p 24) assert that migrants who are unsure of whether to permanently or temporarily remain in UK are least likely to buy a house than those wishing to remain for a considerable period of time. The perceptions of migrants concerning certain types of housing or individual wellbeing in some areas have an effect on attainment of homes in the near future. Some ethnic minority communities and migrants perceive some places of UK as “off limits” due to the danger of racially exacerbated brutality. If this trend continues, some migrants may opt for private rental housing as they feel secure than large living in large housing estates (Nygaard, 2011, p 46; Rutter and Latorre 2009, p 25). Local housing markets affect the type of accommodation available to different people at different times. The UK housing market has been hit by continuous price instability, with volatility resulting in boom and broken series. As the present mode of home ownership stretches to the limit, more people are charged out of the market as ownership levels continue to dwindle, especially among the young cohorts. The volatility in the local housing market has made it harder to obtain home occupation and social housing in the long run. The market goes through the four principal boom and bust series that distort housing options, augment risk and propel mortgage debts and reclamation rates and affect house building and intergenerational capital. Housing market volatility also makes bigger the possibility of debts and repossessions to more homeowners (Muellbauer and Murphy, 1997, p 70). At the end of 2008, two million families with mortgages would have found it intricate to shift as a result of limited and negative equity. Additionally, massive variances in house prices and varying anticipations of home price inflation between locations create a mobility trap. This makes it tricky for some people to move or own property in one place, as well as deterring them altogether. Students’ debts will also affect home ownership among the young people. Since the obliteration of grants and higher education funding in 1990s, there have been impacts on the age at which first time buyers enter home ownership, as well as their ability to do so. With changes in fess in 2011, the standard liability level is anticipated to rise further. This burden of students’ debt is probably going to be a subjective aspect in deciding whether to acquire house tenure at a certain time. The ability to save for the all-vital deposit will be further prejudiced (Andrew, 2010, p 49). Taxation is another factor that will have an effect in home ownership in the near future. The government has been shifting the balance of direct taxation from owner occupiers to the landlords in the past twenty years. The 2011 budget announced concessions to remove taxation on landlords and efforts to reduce the stamp duty land tax burden for investors making mass purchases of land. These initiatives noticeably benefit the private renting sector than home owners. Additionally, they appear as efforts to alleviate the upshots of the fall-off in mortgage loaning for Buy to Let (BTL) and the continuous deficit in institutional investment in the private renting sector. Stamp duty land tax is a barrier for first time purchasers. Eventually, the tax system has shifted to suit the private renting sector more than to home owners. The benefit system remains discriminatory, which is a vital element in considering trends in future tenures (Heywood, 2011, p72). Conclusion Supply is chief to handling housing volatility and affordability in the uk housing market. It is essential that planners facilitate new development, as well as offering adequate incentives to enhance supply. It is also noteworthy to institute short term measures to handle the volatility. The reason is that increasing supply is a long term solution, which does not prevent boom and bust series. Short term measures include credit controls like the time limited maximum loan-to-value ratios to cushion the market against unsustainable house price booms. Others short term solutions include taxation reforms and responsible lending. Bibliography: Andrew, M. (2010) The changing route to owner occupation: the impact of student debt. Housing Studies, 25(1), 39-62. Barker, K. (2006) Barker review of land use and planning. Accessed on 24 January 24, 2013 from: http://www.communities.gov.UK/documents/planningandbuilding/pdf/154265.pdf. Benito, A. (2007) Housing equity as a buffer: evidence from UK households. Bank of England Working Paper Series, January 2007, WP 324. Green and S. Wachter (2005) The American Mortgage Market in Historical and International Context. 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