The houses
for rent bubble in the United States grew
up alongside the stock bubble in the mid-90s. The logic of the growth
of the bubble is very simple. People who had increased their wealth
substantially with the extraordinary run-up of stock prices were
spending to find
a property in U.K. based on this increased
wealth. This led to the consumption boom of the late 90s, with the
savings rate out of disposable income falling from close to 5.0
percent in the middle of the decade to just over 2 percent by 2000.
The stock wealth induced consumption boom led people to buy bigger
homes, as they got excess money to invest on property or housing.
This increase in demand
was momentary or for short period because the supply of housing was
relatively fixed. Therefore an increase in demand led first to an
increase in price and then sudden rise in the price of land in most
affected areas, increased prices got incorporated into assumption.
The expectation that prices would continue to rise led homebuyers to
pay far more for homes than they would have otherwise, making the
expectations self-fulfilling. People believed that housing prices
would never, ever go down, what they thought is that housing prices
would go up in real terms, on average, over time – that housing was
a good long-run investment. They knew there would be variation around
that trend, but they expected the variation to be relatively mild,
they didn’t expect the severe variation in prices and associated
problems that actually occurred.
The
gap between the number of affordable housing units and the number of
people needing them has created a housing crisis for poor people. The
lack of affordable housing has lead to high rent burdens,
overcrowding, and substandard housing. These phenomena, in turn, have
not only forced many people to become homeless, they have put a large
and growing number of people at risk of becoming homeless.
However, the
demand for assisted housing clearly exceeds the supply, only about
one-third of poor renter households receive a housing subsidy from
the federal, state, or a local government. The sold
property prices
tend to lure more business than the income from rent. The limited
level of housing assistance means that most poor families and
individuals seeking housing assistance are placed on long waiting
lists.
The focus of
the government’s response to this affordability crisis has been the
help to buy scheme which provides government support to allow those
who cannot afford to buy with a conventional mortgage access to a
high-loan-to-value mortgage or an equity loan.
This
will no doubt help some people to get on the housing ladder but it
will do little to meet the needs of the low to middle income families
who currently face the biggest affordability problems. It has become
almost right to say that the solution to Britain’s housing problem
is that we need to build more homes. But without more supply, schemes
like help to buy simply risk inflating house prices as more people
come onto the market in search of a home. Estimates suggest we need
more than double the number of homes that we are currently building
each year. But improving affordability has to be more than a simple
numbers game. We need to build more homes in the right locations and
of the right type and at the right price - not just more homes for
sale or prime central London rental developments to meet the needs of
households who currently have few option.
