It has become settled in the minds of millions that housing is the one investment which cannot possibly go wrong. Over and over again whenever the market looked like taking a dive the government stepped in with some scheme or other to prop up the market. This has created an expectation among buyers that the housing market will forever be a case of laissez faire on the way up and government intervention on the way down.

GOVERNMENT SCHEMES TO PROP UP THE HOUSING MARKET

Successive govts keep propping up the “housing ladder” by devising schemes like “Help to Buy” which enable 1st time buyers to scratch up the deposit to buy a home they otherwise could not afford.  Another scheme is “Shared Ownership” whereby the buyer borrows just enough to part-buy a property (typically 50%) and pays rent on the part they don’t own, with the long-term aim of buying the portion they didn’t originally buy.    

The govt also subsidises home ownership by exempting “first home” sales from capital gains tax, thus encouraging housing price inflation.

 “For people who have made an untaxed £300,000 gain on their house, but are now complaining that vine tomatoes are a bit expensive, I have two words of advice. The second one is ‘off’.”  (Rory Sutherland, Spectator 17/06/23)

When everyone is thinking the same, perhaps nobody is really thinking..?

When everyone is thinking the same, perhaps nobody is really thinking..?

The advantages of Home Ownership are thought to be so obvious that young people are desperate to get on the “housing ladder” at any cost.  There is almost a religious fervour about it.  Since the logic of home ownership is rarely questioned, it’s worth looking at the pro’s and con’s.  

Lets look at the pro’s first – as they are surprisingly fewer than you might think..  

The BIGGEST REASON for buying is….

1) IT’S A GOOD INVESTMENT ISN’T IT..?

But hang on..!   Surely the definition of a “good investment” is that it should, at the very least, follow these 3 wise principles..?

• • *No single investment should ever exceed your net worth

  • *It should not put you into long-term debt

  • *Most important of all – it should be as EASY TO SELL as gold..!  

• Home ownership fails this test on all 3 counts..!

2) SECURITY OF TENURE   

Successive UK govts have out-sourced its rental sector to private landlords who only offer 1 year leases, and who can sell or re-possess their property on a whim, so renters cannot put down roots and feel secure.  Society tends to regard property owners as “successful” whilst life-long renters are often thought of as “losers”. 

OTHER REASONS IN FAVOUR OF BUYING are arguable… 

1) LACK OF GOOD QUALITY (& inexpensive) RENTAL ACCOMMODATION 

Pro-tenant legislation, although well-intentioned, has made it very difficult and expensive for property-owners to evict the growing legions of irresponsible tenants and non-paying squatters, who take advantage of every “progressive” protective legislation as an excuse not to pay their rent.  

Govt support and subsidisation of owner-occupancy has created the absurd situation that buying is now cheaper than renting, which contradicts common-sense.

Rather than subsidise first-home buyers and relying on private landlords to provide over-priced rental accommodation, the govt should be promoting and financing corporate and cooperative “build-to-let” organisations to provide good quality rental apartments offering long secure leases.

2) SECURITY OF TENURE – 

Ownership gives a sense of security and “self-worth” not possible in a rented property.  

Corporate or Co-operative landlords would be able to give long-term leases, much better security of tenure, and carry out routine maintenance more economically than private individuals who have to deal with tradesmen on an ad-hoc basis, leaving them hostage to extortionate “call-out fees”.      

3) PRIVATE LANDLORDS can be INTRUSIVE, UNREASONABLE and even UNSCRUPULOUS

Most UK landlords are private individuals whose motive for getting into “buy to let” is because it appears to be easy money. As a “housing policy” it is a BAD IDEA  since many private landlords don’t properly maintain their properties and don’t promptly react to maintenance issues.  Often they ignore, dismiss or trivialise genuine complaints.   On a whim and at short notice, they can decide to sell their property or take occupation themselves.  Such a situation does not allow tenants the security of tenure which would give them the confidence to set down roots.  

Corporate or Coop landlords would be able to provide far better security of tenure such as long leases, regular maintenance, quick attention to problems, and in general competent management with independent arbitration facilities. 

4) RENTING IS A WASTE OF MONEY – “If you rent, you never see your money again”

You can make big capital gains by investing in property.  Since the end of WW2 this has held true, but the future may be different. 

Property is the most illiquid of investments – in many parts of Europe (if not yet in the UK) it can take many months or years to sell a property.  Despite this, governments and investment advisors continue to promote and, in effect, subsidise home ownership as a de-facto “savings scheme” for the ordinary person.   This totally contradicts the common-sense advice that it is foolish to “put all ones eggs into one basket”.  So why are ordinary people encouraged to invest all their “eggs” (and take out huge loans to buy more “eggs”) in a single asset valued at several times an individuals net worth and which may be difficult and costly to sell..? 

Sooner or later Britain will have a big property crash – as has happened in the USA, Spain, and elsewhere.   OA-Cities may sound the death-knell of the “housing market” as we know it..!

5) IMPROVEMENTS, RENOVATIONS & EXTENSIONS –

You can renovate, add extensions, and make improvements to an owned property.  Tenants need the owners permission to make improvements and, even if given, he is unlikely to contribute.

Institutional landlords could give long leases and perhaps even compensate tenants who add value to the property.

6) GOOD INVESTMENT – 

Capital appreciation of property (in the UK by 3% in real terms over 50 years, at least until recently)

What was true in the past may not hold true for the future, and the evidence for that is starting to show 

7) YOUR MONEY IS SAFE IN “BRICKS & MORTAR” 

If you had plenty of spare cash you could lose it all in a risky venture or other speculative gambles

But, aren’t high personal savings rates supposed to be good for an economy?

8) INHERITANCE FOR YOUR CHILDREN –

A nest-egg to hand on to your kids

If some of your kids (now middle-aged) are cash-poor they may resent you living “too long”, and will be hoping you die sooner rather than later.  Then they will bicker and argue amongst themselves over the “spoils”.  This raises the wider moral question of whether it is wise to “spoil” ones offspring with inherited wealth. 

9) MORTGAGE INTEREST IS (or was until recently) TAX DEDUCTIBLE –

whereas interest on savings is added to your taxable income – which seems very unfair

10) HOME SALES ARE EXEMPT FROM CAPITAL GAINS TAX yet every other asset you buy and sell is subject to capital gains tax

More evidence, if any were needed, of govt. favouritism towards home  

The extraordinary rise in the cost of property has over-whelmed the relatively much cheaper prices of everything else.  For example Ideal Home recently calculated that a double duvet should now cost £1,500 if prices had increased in line with property since 1980.   Because spending has been re-directed towards property, we don’t feel as rich as we should.

• WIDER CHOICE OF LOCALITY 

High property prices force first-home buyers to live in areas they do not much like and would not have chosen to live in if society did not keep insisting – “unless you own your own home, you are a loser..!”

• LESS COMMUTING 

First-time buyers often can only afford outlying areas with a long tiresome commute into town.   If the many hours wasted commuting were priced into the equation – which it NEVER is – then people might think again whether buying is such a good idea

• NO MAINTENANCE BILLS

Your landlord is responsible for all maintenance (e.g., plumbing problems), building insurance, etc

• FINANCIAL LIQUIDITY

Owners may have a lot of money on paper, but because they cannot easily access it, they are left with no spare cash for other investment opportunities

• LOWER DEBT

Property bull market has led to massive increase in household debt as owners borrow on their property’s equity.

• LENGTH OF STAY IN AREA

If you’re likely to relocate within the next 7 years or so, buying a house may not be worthwhile.  On average homeowners need to stay put for up to a decade before returns from the rent they are not paying begin to outweigh the buying costs.  And, if you need to re-locate at short notice, you will have to reduce your asking price.  

• LABOUR MIGRATION FLEXIBILITY

For obvious reasons, home owners are much more reluctant to re-locate than renters.  By staying put you could miss out on better career prospects.

• PROPERTY BULL MARKET CAN LEAD TO A BIG FINANCIAL BUST

Rising property prices make people feel rich so owners spend more on luxuries, usually borrowed against the property.   When property prices fall people stop spending – consider especially the effect on the massive home improvements and DIY industries which employ so many.   A severe or extended fall will lead to many business bankruptcies, which leads to unemployment, which leads to forced selling, bank re-possessions, and a market flooded with property which leads to further falls and a massive property price crash at best leaving millions of home-owners in negative equity for years, at worst resulting in the collapse of the banking system.

• OVER-COMMITMENT TO A SINGLE INVESTMENT

Our elders warned us about “having too many eggs in one basket” – so why do we ignore this sage advice when it comes to home ownership..?

• SCROOGE SYNDROME

Most of us know some property-rich but cash-poor people who constantly complain about how “hard-up” they are.

• CAPITAL-GAINS ILLUSORY 

There is nothing to be gained from selling-up during a property boom, because your next house will also have increased in value.  Unless you intend to move overseas to somewhere like France or Spain where property is so much cheaper.

• MORTGAGE MILLSTONE

A mortgage means taking a long rain-check on personal ambitions, travel for example.

• FINANCIAL STRESS

Servicing a mortgage often means a perennial state of financial struggle – “mortgage slavery” – bringing marital/social problems

• MISSING INVESTMENT OPPORTUNITIES

Poor liquidity suppresses entrepreneurial drive. If you REALLY want to be rich you need to have capital.

• IS THE SACRIFICE WORTH IT…?

Why sacrifice your life to a retirement you may never see…? Or, for that matter, to possibly ungrateful children..?

• WHO REALLY PROFITS..? 

The real profiteers from property booms are sales agents, solicitors, builders, and the DIY industry.

• LESS “STUFF” & CLUTTER

Owners tend to accumulate far more because they have garages, spare rooms, etc., in which to shove all their redundant stuff.   OK till you need to move house and only then realise how much stuff you have.  “Stuff” ties people down and makes them reluctant to move.

• FEWER PROBLEMS WITH NEIGHBOURS

Home owners are more likely to have disputes with neighbours.  

For example – if you want to build an extension, or a window or balcony (which even slightly overlooks one of your neighbours) – or add a storey which might block out sunlight or a view, or any of many “loss of privacy” issues.  One or more of your neighbours will almost certainly OBJECT to the planning department and, from my own experience, objections are exaggerated or trivial or worded in an insulting way, for example “the applicant is trying doing this on the cheap”.   Any one of which is likely to cause friction and make you fall out with your neighbour(s).

Building work creates noise and dust that can go on for months.  The builders cause problems with their trucks or skips blocking parking spaces, etc.  Boundary disputes are rife. Simple matters like pruning an over-hanging tree can lead to major arguments and falling-outs.  There are a myriad ways in which neighbours can fall out with each other.   Renters don’t have to worry about their property being devalued by a neighbour’s actions, making disputes less important and more easily resolved.

• EASIER TO ESCAPE BAD NEIGHBOURS 

Rowdy or badly-behaved neighbours are a big problem for owners, but less so for renters who can easily move away.  Complaining directly – or worse, reporting bad neighbours to the police or authorities – will almost certainly lead to hostility and enmity.  With OA-Cities the vetting process will likely identify potential trouble makers.  Disputes will be more easily resolved, the leasing authority acting as arbitrators.  If all else fails, it will be very easy to move to another apartment.  

• NIMBYISM

Owner-occupiers are inclined to selfishness and small-mindedness when it comes to new developments.  They are virtually guaranteed to oppose ANY and ALL new developments, regardless of quality.  One fine example, which the Nimby’s have successfully stalled for many years, is PortZed an eco-project on the Hove seafront by Bill Dunster, justly famous for his “BedZed” eco-apartments in Sutton, London.  Almost everyone likes the proposal except nearby home owners, who have mounted a hysterically vociferous anti-campaign not because it is a bad development (although they try to claim it is) but because it will block out most of their winter sun.  I can understand this, but If the properties affected were owned by companies or institutional investors, and not by individuals, the local planning authorities would be less swayed from making the right decision.

• STRESS AND EXPENSE OF BUYING & SELLING

Buying a property is a huge financial decision which most people are uncomfortable with and shouldn’t have to make.  Unless your property search is close to your present home you may have to spend a lot of time and money visiting your preferred area.  

Selling a property is very stressful and in a weak market can take months or even years unless you are prepared to take a big loss. Meanwhile you have to endure dozens of strangers – some of whom have no intention to buy but are “just looking” – tramping through peering into every nook and cranny and asking daft questions.  And you may have to spend extra money making your place look more attractive and spend time tidying-up before every “viewing”.  

TRANSACTION COSTS – Legal fees, stamp duty, capital gains tax, property surveys, building insurance, agents commissions., etc. And especially GAZUMPING (when the market is “hot”)

• DISTRESSED SELLER RAGE

During the mid-90’s housing depression it was reported that some angry sellers vandalised their property because they were forced to sell “too cheaply”.   If this can happen in the UK where prices in most areas have never fallen by more than about 20% from their peak – then we can expect it to get much more nasty if or when the bottom really drops out of the market.

OA-Cities will enable you to buy shares in your own city

OA-CITY SOLUTIONS

* LEASING – All residential units (indeed the entire structure and its environs) will be owned and/or leased by a foundation – a trust or co-operative – ensuring that the occupants, provided they uphold their responsibilities, will have security of tenure for as long as they require.   There will be no question of the owner “wanting his property back” or raising the rent unilaterally or unreasonably.   It will be like renting from the town council, but with much better neighbours

* RENOVATIONS – Units will be built and let “open plan”, much like most office/commercial space, so that the lessees have total freedom of choice as regards the internal floor plan.   Internal partition walls would be available in various degrees of sound-proofing as dictated by purpose, and could be either leased or bought, and later sold-on to the next occupants.

* PROPERTY INVESTMENT – Direct purchase of units may (ideally) not be possible, but OA-Citizens will be encouraged (and possibly obliged) to purchase shares, thus buying a stake in the prosperity of their community, So they will be buying into the neighbourhood, and not the house..!