Chancellor George Osborne will deliver his Budget of the Parliament on the 18th of March, which is less than two months before the date of the general election. Given the state of our economy and the high stakes of this election, it is imperative that the property market is included in his plans. London's population approaches a record high of 8.6 million people, and according to Yahoo Finance, last year, about 60,000 30-somethings left London, which is the highest number in London's history. On top of this, soaring property prices have made purchasing homes out of the question for many young prospective buyers. While London's housing crisis is indeed unprecedented, we should look to international examples of how to effectively manage the effects of the soaring property prices in London.
Owing to the increasing unaffordability of property in London, an entire generation has become dependent on the rental market. Millennials are trapped within the rental market for the long-term, and unlike their parents, who increased their net worth through property as opposed to labour, this generation depends on the opposite. Factors such as 20% deposit rates make it difficult for even those who earn a comfortable income to purchase property.
While the economic situations in France and the UK have many similarities, France has managed to maintain a healthy property market. Mortgage rates as low as 2.9% attract interest from all over the globe. According to SourceWire, between Dec 2013 to May 2014, France saw an 85% increase on property sales for the same period the previous year.
Thanks to the efforts of the bank of England and QE policies, mortgage rates in the UK have dramatically decreased and have been low for the last couple of years. However, the large majority of want-to-be homeowners have access to variable rates which can make things difficult as their mortgage will dramatically increase in time. If the UK banks are able to emulate fixed mortgage rates, like in France where you have fixed 10 to 25 year mortgages and the level of deposit required is not as drastic as in the UK, I have no doubt British millennials would be more inclined to invest in property.
Flatsharing in London:
While it can be argued that the millennial lifestyle is actually conducive to flatsharing, the 20-something crowd is not the only population affected by the current unaffordability of housing in London. Not only are established professionals now renting, but they are also being forced to flatshare. According to Homelet, the average rental value for new tenancies in London is £1,393pcm, which is £149 more per month than the average rental value in December 2013. At these rates, people are cornered into sharing a flat in order to be able to even afford their monthly rent.
With tuition fees at £9000 a year on top of living expenses, it is easy to see how students struggle to make ends meet or why young professionals with low to moderate incomes have to live in flatshares to afford a roof over their head in a city where the average rent for flatshare in London has increased by 6.2% in the last two years to £651. Of course, London finds itself in a particularly unique economic situation, but despite this, the UK should look to other countries' to view their financial assistance programs such as Germany with its Wohngeld or France with its ALS (Allocation de Logement Sociale) and APL (Aide Personnalisée au Logement), as an example of how to create more financially feasible housing. Programs such as these have made it possible for students to pursue their degree without worry that they will make their rent each month and young professionals to decide if flatsharing is an option they feel comfortable with instead of the only option.
If the housing market requires that more people depend on rental properties and landlord services, it is imperative that landlords maintain certain standards. Due to the very low offer vs. demand ratio of housing accommodations, unscrupulous landlords rent out properties that don't meet health and safety standards, and owing to lack of options, renters still rent these spaces despite the poor conditions. In attempt to increase living standards for renters in the city, the Mayor of London launched the capital's first ever rental standard, a city-wide badge of accreditation in last May of 2014. To gain accreditation, landlords must sign up for a one-day course to learn about their legal rights and obligations, best practice recommendations, and basic landlord protocols. While this standard is an excellent starting point, landlords must be held accountable, legally. This standard must be converted into a national law that extends beyond the city of London and holds landlords responsible for maintaining these standards, which in turn will guarantee safe housing solutions to all renters.
The current housing and property crisis affects all Londoners and it is of utmost importance that the Chancellor addresses these issues. It is our responsibility as citizens and government officials to tackle this situation head-on in order to improve the quality of life for all Londoners. There has never been a better time for the Government to reinforce the phrase "An Englishman's home is his castle." The budget will be the last opportunity for the government to put its case to the people of the United Kingdom and they should use this opportunity to address one of the biggest concerns facing Brits today - housing.