June 14, 2021 - 4:15pm
According to the US house journal for Big Finance, the reason today’s young people remain in rental accommodation long past the point when previous generations had bought their own home, is because they don’t want to be tied down.
The generation that’s postponing or giving up on family formation and kids because of financial insecurity actually loves its fluid, flexible, move-at-the-drop-of-a-hat lifestyle.
That’s the justification given by the Wall Street Journal for a new phenomenon now taking root in the United States, in which entire estates of newbuilds are being constructed — not for sale to first-time buyers, but for rental.
This comes hot on the heels of news that colossal pension funds are moving aggressively into the private rental market. Numerous reports detail the American pension-fund stampede into family homes, pushing up prices and prompting concern that the drive will yank the cost of ‘starter’ homes beyond the grasp of ordinary first-time buyers.
It’s a good thing all those millennials (supposedly) just love the flexibility and simplicity of a lifetime in rental accommodation, then, because it looks like many of them will never have the option to be tied down by long-term wealth accumulation or stable home-ownership.
The World Economic Forum statement that by 2030 ‘You’ll own nothing. And you’ll be happy’ attracted a mix of scorn and paranoia. Conspiracists intimate that the pandemic has been deliberately introduced to trigger a shift to a neo-feudal, corporatist world order in the name of ‘climate change’.
This, it’s implied, would complete the hollowing-out of the middle class by expropriating what’s left of bourgeois opportunities and reduce the masses to the status of serfs at the mercy of a corporate oligarchy.
For while the WEF may view the shift toward renting as a positive change, stories percolating up from the ground suggests otherwise. A recent investigation in The Atlantic detailed what it’s like living in Wall Street owned housing. The promise was economies of scale on management, affordable rentals, and a stabilised market; reality was squalid, crumbling homes, poor maintenance and a money-gouging approach to repairs and security deposits.
While the idea of neo-feudalisation as a methodical project seems far-fetched, home ownership has traditionally been a means of wealth creation for the middle classes. This avenue is increasingly unavailable, with significant downstream effects. American millennials putting off kids are not the richest and poorest but the ones in the middle — those, in fact, now being priced out of home ownership in escalating numbers. I doubt this is a coincidence. Big Finance is accelerating the immiseration of America’s middle class.
And Lloyds Bank takes steps into UK real estate, this feudalisation of family housing is coming to Britain as well. Resisting this change is obvious policy for a conservative politics genuinely oriented toward the interests of the working and lower middle classes.
How (or if) our Tory government responds to this troubling new trend will tell us a great deal about whether politics actually is realigning. My fear is that we’ll discover Johnson-era Tories to be the same old plutocratic back-scratchers, just with a side order of anti-woke.
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SubscribeYou used to buy books. You read them, then you could keep them, or perhaps flog them to a bookseller, or give them to friends (or strangers). But you had a (fungible, ho hum) asset that you had invested in. Ditto a car; or software; or music, or films. Then they all became services, not purchases, and in the switch, suddenly what you thought you had bought (say an ITunes album) became something you had just rented….So the focus moving to housing is no real surprise, what with the obsession on scaling up and *accelerating disruptive strategies* that these unimaginative corporates usually display. And the history of ‘x as a service’ is one of dismal service, ironically enough. How banal, and how dismal this will be for the youth.
If this happens in the UK, it will be an absolutely textbook example of Be Careful What You Wish For.
For at least ten years, any newspaper article about property attracts a tsunami of comments hating Buy-To-Let (BTL) landlords for – supposedly – buying up all the properties that first-time-buyers (FTBs) would have bought. Almost the entirety of a loony website was dedicated to hoping for a house price crash and jeering at all the money BTL landlords were sure to lose.
That FTBs can’t buy was apparently nothing to do with the arrival of 10 million immigrants in as many years, and entirely the fault of their landlords.
George Osborne fell for the lot and subjected landlords to a truly bizarre tax attack: stamp duty penalties, higher CGT, income tax charged on turnover, mortgage relief disallowed, and so on.
Landlords duly started to quit the sector, which the Tories apparently want to destroy, so of course prices and rents alike then went up, because rental property is more densely occupied than owned. A five-bed, three-reception semi will house a family of five in owner-occupation but up to sixteen tenants. Force the landlord to sell it and sixteen tenants get evicted, but only five get rehoused in it. Those net eleven tenants are now looking for another rental in an ever-shrinking market.
The rationale for deliberately wrecking the rental sector in this way was that supposedly a new type of landlord, more professional than your BTL landlord who lets out one flat and whom nobody likes, would come onto the scene. Huge pension funds would enter the residential housing market, build and let out better properties, and maintain them better.
Except they won’t. This article shows what will happen instead: they’ll bid up the price of existing blocks far higher than individual landlord ever could, they’ll build worse, and they will maintain them worse, not better. If the tenant leaves, the same huge financial player is the only game in your town. And if the tenant’s ever late with the rent, bye bye credit history.
And this is exactly what the landlord-hating classes think they wanted. I’m so glad they’re going to get it.
So your solution to a housing crisis, in which due to QE equity rich property investors are able to outbid first time buyers despite not having to put in a penny of their own money, is for 16 youngsters to squeeze into a house? No doubt if this started happening on your street you’d be the first to complain at their cars clogging up the parking, the noise they’d create etc.
Landlords create an artificial shortage by buying up large numbers of properties, leaving all the youngsters to fight over a diminished supply which is pushing up prices. If you took large numbers of landlords out of the market, those houses don’t simply disappear, you may find prices drop to a level where hard working young families can afford a family home and a start in life
I doubt that Covid was a deliberate ruse to bring it about, but the WEF certainly leapt on the opportunity to turn their ‘Agenda 2030’ into ‘The Great Reset’. World ‘leaders’ (including Boris) have been parroting the talking points and phrases – “Build Back Better” etc.
Before Covid, the WEF site had essays to illustrate what life will be like in Schwab’s 2030 ‘utopia’. One was titled ‘I Own Nothing, I Have No Privacy, But I’m Happy’. When they say we’ll own nothing, they mean it – literally everything will be rented for the duration of use, pots & pans, clothes, your accommodation will be allocated when you need it and will be rented for the time you’re in it. When you go to work, someone else will be renting it. Not one of the essays mentioned families – when you don’t live anywhere, you can’t live with someone. Schwab apparently watched and read dystopian sci-fi and thought, “Ooh, that’s a good idea”!
None of this will of course apply to the patrons of the WEF or their families
It will be detrimental to capitalism, society in general and the UK in particular if people can’t afford to own their own property. Policy should be to enable as many people as possible to own their own property. It has always been hard – ask my grandparents (b. turn of the last century). Ask my parents. Ask me. But if we want a stable society, we need this.
Literally a ‘buy in’ to society as a whole vs marginalization and all the angry acting out that follows…
Let me pose this counter-intuitive idea:
In the United States we *have* long had policies to promote home ownership starting with at least the Community Reinvestment Act of 1977. Promoting home-ownership became a bi-partisan project, the idea being that home ownership induces people to take more interest in their communities. They assume ownership not only of their homes but also of their communities. It’s all good, right?
But, the policies put pressure on the banks to channel subsidized mortgage loans to people of modest means. And, that, my friend, set up the housing crisis of 2008/9. The Wall Street “quants” got a hold of these portfolios of “sub-prime” loans (loans to people of modest means who really shouldn’t have been getting loans), and derived a host of financial options from them (“derivatives”). The underlying, mathematical modeling was very elegant — basically the Black-Scholes model according to which we can model risk and uncertainty as nicely-behaving white noise/Brownian motions. All well and good, except when risk doesn’t conform to white noise. When that risk becomes systematic — that is, all of it moving together in one direction — the market for derivatives falls apart. So, one can have the most elegant mathematical models, but if they’re off-base, they’re just plain wrong. The models were way off-base.
That’s one result of forcing Big Finance to find ways to subsidize home ownership. And here’s another: We should not be too surprised to find that inflating the demand side of a market with subsidized credit induces an artificial rise in prices. Why? Because the supply side does not sit there passively. If folks want to pay more for houses (because they can get bigger loans than they would otherwise be able to get), then home sellers will raise prices. Supply and Demand. No big mystery there.
So, there we go: Public policy intended to promote home ownership has the perverse effect of putting home ownership out of the reach of folks who can’t get those subsidized loans. Those are the people in the middle. So, they don’t buy homes. They don’t settle down. They don’t have kids. They get kicked out of their jobs during COVID. What do we expect.
Here’s my policy prescription: Stop trying to use public policy to promote home ownership. Let housing markets work without government interference. Easy.
Now let me pose another, almost contrary argument:
It just doesn’t matter. Home ownership may have been a traditional way of building up wealth, but for nearly 50 years now, with the advent of (indexed) mutual funds, it’s been easy to build up wealth by investing in financial markets.
So, question: Would investments in a home dominate investments in mutual funds? Not necessarily.
I did some calculations. I bought a house in a transitioning neighborhood in 2003. I sold it in 2019. Would I have been better off financially to have rented that same home (and to have invested the 20% payment in mutual funds) or to have basically rented from the bank (albeit paying monthly mortgage payments that would have lower than rental payments)?
I had to make some assumptions, of course, but the result was: The state of my finances would have been NEARLY THE SAME whether I had rented or did what I did (bought a home). I was surprised. But, then, you know what? Maybe the result indicates that financial markets can work pretty well. Money sloshes into this and that as people look for yield. Not everyone has to be a yield hound, but so long as financial investments collectively respond to incentives, then it may not make much difference where one invests. If that is the right to think of things, then the prescription is: Invest, invest, invest. Squirrel money away, dribs and drabs at a time.
Now, that raises a question for the folks in the middle. Are you really being squeezed, or are you not availing yourselves of the easy opportunities to invest what modest resources you have?
Except that at the end of those 20 years you’d still be paying hundreds a week in rent, whereas if you’d bought the property you’d now be living rent free until the end of your days
You can’t blame a policy for helping youngsters into homes for a banks greed that caused a major financial meltdown. The credit crunch was caused by the banking sector, nobody else. The fact nobody has ever truly been held accountable for ruining the lives of millions is a shameful indictment of where capitalism currently finds itself
“And, that, my friend, set up the housing crisis of 2008/9.”
What about the preceding ‘de-regulation’ that allowed it to happen? What about the ‘incentive schemes’ the banks put in place, like, you don’t earn a salary, you just get paid according to how many mortgages you sell? There were many factors that led to the crisis.
“Let housing markets work without government interference.” Many markets won’t work for the public benefit without government regulation.
And who was ultimately responsible for the subprime crisis, Billy Bob Clinton, his Attorney General, Janet Reno and his Assistant Secretary for Fair Housing and Equal Opportunity, Roberta Achtenberg, who cajoled and then threatened lenders with legal action to force them to grant mortgages to individuals who, objectively, were never going to be able to make the repayments. This they justified with spurious race argument: sounds familiar?
Since it was a Democratic administration they were given a free pass by the chosen MSM
See https://www.spectator.co.uk/article/clinton-democrats-are-to-blame-for-the-credit-crunch
…zigackly Chauncey. Arguably, public policy can extend to (limited) measures to support “a roof over every family”, but a policy of “everyone owning their own roof” is policy over-reach in virtually every economic and social dimension imaginable.
I think, until recently, the point of owning a property was to provide a home in which to raise children. If that is no longer important, there is no longer a necessity or expectation to acquire a home.
OK, some people are not comforted by memories, but don’t most of us have some of their identity attached to memories of their families and even their own past? I have not only my parents’ dining room furniture, but also my grandparents’ (expensively re-polished and upholstered); I have the piano my music teacher left to me (the Bluthner, not the Yamaha), I have various clocks and other things from an assortment of old uncles, aunts, and their uncles and aunts. I’m not the sum of these possessions, but at least they do remind me where I’m from.
Also, I’m currently mulling over colour cards – if it’s your own home you’re free to re-paint, change curtains and carpets – it’s nice to be able to choose what to do, when you want to. Also, all the work that’s gone into the garden over the years, which can now be reaped – the figs, blueberries, lemons, strawberries etc. From what Mary writes, the young won’t have to fear dementia in old age, dementia will be their ‘lifestyle’.
They aren’t even that anti woke when you listen to BoZo after the G7 with his ‘build back better greener more gender-neutral but in a feminine way’ Woke gobbledegook at it’s finest all said while taking the knee to Creepy Joe
Bring on the revolution. There’s nothing left but to burn the rotten, corrupt system down.
Totally bang on. As an ex-financial advisor and having recently put a toe back into this sector, it is alarming how much wealth has been accumulated through ices and property by the previous generation and how little there is for young people who do not have a bank of mum and dad. These very same mums and dads will soon be selling up their rental properties to these large corporate‘s and cashing in. We need a new political force in the UK which costs off the shackles of old style socialism and really stands up for aspirational youngsters and the need for a home as a basic human right. If we are going to have a rent economy then Tenants need security, rent protection, and maintenance rights.
I’m curious as to how a real look at rentals on the European mainland might make for a more nuanced argument here. Middle class home ownership has long been an English speaking world phenomenon: yet it seems that the kind of terrible landlord behaviour mentioned is not typical in Europe. Friends in Germany, France and Switzerland have never had any intention of owning homes, as home ownership is often prohibitively expensive and heavily taxed, and yet their middle class lifestyle has in the past seemed pretty good to me. A home is obviously the most expensive item most people often own so it’s in a rather different category even compared to car ownership.
Germany has a housing surplus and a flatlining population, so its use as a comparator to the UK situation is very limited and perhaps nil.
This is so depressing – and true. Comparing my experience with that of my parents and my children, we can see a trend to young people settling down later and later – and the later they leave it, the harder it gets. It’s too easy to start renting, you enjoy life, a better property than you could afford to buy, in a nicer area, and after a few years you find that a home is like a phone or a car – just trade it in for the next model. Your life is just a rolling contract, going from one model to the next, but with nothing of substance to show for it.
I expect we are all partly to blame for creating our own society.
My parents were old enough to well remember the great depression, and their generation were really motivated to own their own homes. They saw what happened to people who were renting and lost their jobs. It could happen again.