By Graham Vanbergen – First Published in The European Financial Review.
The housing model we are increasingly becoming less at ease with has a number of serious and disturbing manifestations. Just one of them is that older homeowners and property investors have benefitted so much from house price growth over the last few decades that an entire younger generation has effectively been priced out of the market. There is a palpable inter-generational discord that now borders on resentment.
The EQUITY Research Centre, is an organisation focused on one of the UK’s greatest social, economic and political challenges – the housing crisis. Its database is eye opening. For instance, in the UK, 75 percent of private housing equity is owned by the over 50s and 42 percent in now owned by the over 65s. Their total net borrowing is just £43 billion. However, the under 35s owe nearly £225 billion in mortgage debt on the £221 billion of equity they have whilst representing just 8.7 percent of homeowners. (1)
Feantsa, the European Observatory on Homelessness, reported last summer that roughly half of young people in the EU currently spend more than 40% of their disposable income on housing. In some countries the situation is even worse. 78 per cent of young people in Denmark and 65 per cent in Germany are spending over 40 per cent of their disposable income on keeping a roof over their heads. (2)
At the sharper end of the housing crisis some numbers from that database are truly alarming. In Greece, homelessness has increased by an appalling 71 per cent in the last 5 years. Denmark has seen an increase of 85 per cent in 6 years, and Germany a 35 per cent increase in just the last 2 years. Lithuania has had an increase of 32 per cent for mother and children falling into homelessness in 8 years and in Britain, the average age of death for someone who is homeless is now just 47.
The causes are of this crisis across Europe are diverse. They include the usual suspects depending on location. Rising population, stagnant wages, ever rising rents and property prices, deep cuts to government social programs, and a concentration of available work in urban areas with insufficient affordable housing. Other reasons include foreign investors, building permissions, construction numbers, land and the like.
The main complaint at the sharp end no matter where is price rising faster than income.
In the EU, the proportion of households overburdened by housing costs has grown from 9.9 percent in 2009 to 11.3 per cent in 2015 – an additional 3 million households. This is even higher in the UK at 12.4% – about 1 in 8 of all households.
Research from the UK’s National Housing Federation found that the proportion of EU citizens with incomes below 60% of national median incomes who are overburdened by housing costs has grown from 34.5% in 2009 to 39.3% in 2015. In absolute figures, this represents an additional 3.7 million low-income households in just six years. (3)
Of course, the rise of people living in cities, particularly capital cities, is where the worst of the housing crisis occurs. The higher the degree of urbanisation, the more likely it is that a household is struggling with affordability as real wages continue to diverge from inflationary housing costs.
While 9.1% of European households in rural environments are overburdened, it is nearly 14 percent in cities. Around three quarters of the EU population live in urban areas, and pressures on urban housing markets will only intensify as more people move to cities for jobs and education. Which is predicted.
The NHF says that, despite this obvious increasing housing need, many countries have decreased their budgets for building new affordable homes. Across all EU countries, funding for building new homes has fallen from 54.5bn Euros in 2009 to 27.5bn Euros in 2015. This is one of those hidden austerity measures devised a few years ago with visible results today.
In Britain, public expenditure on housing has also fallen. The relationship between housing allowance and expenditure on housing development are interrelated. As a percentage of all public monies invested on housing, 64 per cent was spent on housing allowance in 2009 – increasing to 85 per cent in 2015. This is offset by the amount of money invested in housing development that in 2009 was 36 per cent, which fell to 15 per cent in the same time frame. In other words, landlords and developers benefit from policies such as these – ordinary working citizens and taxpayers have not.
One could argue that policies such as these not only exacerbated an inevitable housing crisis but has also caused a huge wealth transfer from the overburdened and struggling to the affluent.
The real question about the housing crisis is how do you solve it, without crashing the market and politically losing votes?
In the end, affordable housing is not simply about housing a population. And if a government is unable to satisfactorily accomplish this most basic social responsibility, one has to ask what are they there for and what greater betrayal of the youth is there.
Housing provides other hidden public benefits, including improvements to health, economic security, employment and enjoyment of family life, which new research fully demonstrates is being denied to millions. (4)
Policy makers should not forget that the slums of the 1800s in Britain arose initially as a result of rapid urbanisation, population growth and an unfettered market – the result of extreme capitalism that fully divided the nation. We’ve seen this before. The Property owners and developers of the time did not welcome interference, unless it was in their favour. Yet land and property values meant that the poor could only ever afford to live in overcrowded and unhealthy slums, creating an array of health and social problems, much like they are creating today. (5)
Graham Vanbergen is Policy Director of the EQUITY Research Centre