1. Homeowners in poverty
The starting-point for this pamphlet is the recognition that contrary to much public and political opinion, owner-occupation is not necessarily a route to personal financial security and stability.
- In 2008/09, 53 per cent of those in poverty were owner-occupiers.
- Around a third of these poor households own their homes outright.
- Nearly a quarter of poor households are buying their homes with a mortgage.
- After housing costs, there are over three million people of working age in owner-occupied housing in poverty. Over two million of these people have mortgages.
This 'squeezed middle' can find that even a modest loss of earnings or a rise in housing costs can lead to serious difficulties. This will be made worse by recent changes in support for unemployed owners. The level of state support for owner-occupiers is often inadequate and it is simply withheld until households reach the point of crisis.
This pamphlet therefore argues that we need to be more critical of the assumption that the continued extension of home ownership is the necessary basis of a sound housing strategy, as there is a large, neglected group of people for whom ownership is problematic. We also need a recalibration of the way we allocate risk in our society, with a return to some of the solidaristic foundations, based on the principles of mutual insurance, which underpinned the post-war welfare system.
The pamphlet takes a fresh look at the relationship between ownership and labour market mobility, considering potential immobility of the owner-occupied sector, and finding that it is often as immobile as social housing. When we have most needed labour market mobility in the UK, for example during recessions, the owner-occupied sector has acted as a serious economic constraint. We saw this in the phenomenon of negative equity in the early 1990s. The combination of a lack of jobs and an inability to move was mutually reinforcing, creating a vicious circle where immobility stifles the labour market and a weak labour market holds back the economic growth needed to fire up the housing market.
We also look at the politics and ideology of housing in Britain. The politics of housing in Britain segregates tenures, assuming that public housing is for the problematic poor, ownership is for the aspiring many, and private rental for a minority in limbo.
In fact many of the problems facing households in these tenures are very similar.
There are signs that the impact of recent developments in the politics of housing will only make the situation worse, with coalition cuts to housing benefit payments set to reinforce segregation and harden the hierarchy of tenures. Many tenants will be forced out of attractive and economically vibrant areas and pushed further to the margins, both socially and spatially.
2. How housing and work interact
The pamphlet sets out an analytical framework to examine the potential barriers to work that can arise with different forms of housing.
Many of the barriers are common to all forms of tenure and are part of a more general failure - the failure of housing policy to join up with labour market policy. There are also specific financial and individual household pressures facing owners. We therefore ask if ownership itself is a source of disadvantage and examine whether these problems exemplify the broader ways housing can act as a barrier to employment opportunities.
We also outline a typology of some features of homeownership and the comparative advantages and disadvantages of ownership in relation to other tenures - ten factors that combine to produce a number of social and economic problems.
Analytically, there is an important distinction to be drawn here between housing as a home and housing as an asset. We also draw a distinction between financial and spatial problems for households. For homeowners in particular there is a set of financial problems associated with the combination of property as both home and asset. Top of the list of financial problems for all households is excessive income stress - a serious problem for private renters as well.
There is another set of spatial problems, having to do with the fact that the owner-occupier's house is a home, with a fixed location (unlike most other assets). These problems reflect the neighbourhood and spatial aspects of housing, and are similar in many respects to the spatial problems associated with much of the poorly planned social housing of the post-war period.
3. The squeezed middle
The pamphlet then looks at some financial problems of home ownership. These difficulties are a source of stress to families and can have a negative impact on the employment opportunities of household members.
An affordability crisis
People's aspirations are changing. In 1975 only 62 per cent of people aspired to own their own home in the following ten years. By 2010 89 per cent saw owner-occupation as the ideal long-term tenure. Yet there is a serious affordability gap, meaning that the pursuit of this aspiration often comes with a heavy price in terms of household finance and wellbeing. This is creating real and new risks for families. For example, prior to 2003, up to 5 per cent of all mortgage holders were repaying only the interest on their loan and lacked an alternative investment plan to pay off the capital. By 2006-08 this had reached 12 per cent.
Opportunity costs of ownership
The pamphlet analyses some of the longer-term risks of ownership for households, beyond immediate income problems which, at their worst, can risk excluding individuals and households from the labour market altogether. There is a clear sense in which ownership can crowd out other opportunities, particularly in the labour market.
We also question the appropriateness of homeownership as a savings strategy and look at the impact that mortgage commitments can have on an individual's ability to make decisions about their employment and development.
Spatial barriers to employment
Families on low incomes may only be able to afford to buy in an area with poor infrastructure and little social capital. This may ultimately threaten the household's income if one of the occupants loses their job and they then struggle to access new job opportunities. Ownership in an unstable market, without connection to job opportunities and social networks, and without the supportive structures of the welfare state, can all too easily become a degraded good.
We therefore argue for the need for continued, active economic intervention to support areas with depressed house prices and stagnating local economies and we need to stand up for regional economic intervention.
4. Policy responses
The pamphlet therefore proposes extending to struggling owners the services that are currently on offer to social tenants including employment support, debt advice, and help in connecting households to social networks, bringing support for young families and retired households alike.
We propose a package of support for owners to help with financial insecurity, including:
- extending housing support to help with some of the costs of ownership, reaching more than two million adults in owner-occupied housing living in poverty
- developing a Housing Cost Credit to bring all forms of assistance for housing costs into the same system with different streams to meet different needs
- compulsory insurance for all new mortgages - in which the risk is shared by government, lender and borrower - with the 'Sustainable Home Ownership Partnership', costing owners around £1.60 per £100 of mortgage payment or around £170 per year on the average mortgage of £140,000 with an interest rate of 5 per cent.
Issued: 15 July, 2011