Landlords should be tenants’ servants, not their monarchs

How does the thought of renting your home for your entire life sound? For many Britons, it probably evokes a horror show of chronic insecurity and broken homeownership dreams. But for the typical German, lifelong renting isn't a nightmare; it's just normal life.

The UK home ownership rate has slumped from 73 per cent a decade ago, to just 63 per cent today. For those born after 1980 - the millennial generation - the ownership rate has, of course, collapsed even more dramatically, mainly thanks to fast rising house prices and pitifully meagre wage growth since the financial crisis.

Politicians of every stripe - from Theresa May to Jeremy Corbyn, to whoever leads Ukip these days - agree that the British aspiration of home ownership ought not to be snuffed out, and that this worrying trend must be put into reverse.

But must it? In Germany, the proportion of the population who own their own home is just 52 per cent.

The rest, of course, rent. And, for the most part, they rent happily too.

While most private renters in the UK aspire to buy, their German counterparts mostly do not. Why the difference? The answer largely lies in Germany's extensive guarantees of tenants' rights.

Indeterminate tenancy leases in the German private rental sector are the norm. That means that those who wish to stay in their rented house or apartment for their whole life usually can. And since 2015 German local authorities can now also cap rent increases on new lettings in their area if they see the market overheating.

Compare that with the standard rental contract in the UK of "assured shorthold tenancy", which gives landlords the right to remove tenants at just two months' notice. And think of the avalanche of opposition when Ed Miliband suggested a modest rent increase cap a few years ago - an idea since taken up by Jeremy Corbyn.

Basic economic theory suggests caution over any kind of price cap, with the warning that they can create damaging distortions. But there are grounds for looking at housing - especially the British market, where housing is regarded as a high-returning store of wealth, but which is historically prone to disruptive boom and bust cycles - as a special case.

Some form of mild, sensitively designed rent control could disincentive people from ploughing their savings into property, and curb the tendency for people to look on their rented-out properties as an excellent pension plan.

But the German divergence on housing is not just about different regulations; it's a divergence of political philosophy. It's said an Englishman's home is his castle. And that has come to apply to the various other "castles" owned by landlords too. The Thatcher government, in particular, was determined to enhance the power of landlords.

But in Germany, a different philosophy prevails. Article 14 of the Federal Republic's constitution states: "Property entails obligations. Its use shall also serve the public good." The upshot is that in Germany the landlord is not the tenant's monarch, but the tenant's servant.

In some respects, though, we are already becoming more like Germany here in Britain. A new report by the Resolution Foundation think tank estimates that, if current trends of declining home ownership continue, up to a third of millennials will be "cradle to grave" renters.

The social implications of that are stark. It is already exerting stress on families in their thirties who are starting to have children, but who often cannot find suitable accommodation - or who fear being asked to leave at a landlord's whim, potentially disrupting their children's schooling.

Resolution also estimates that current trends could ultimately lead to a near-doubling of the pensioner housing benefit bill, as low-income millennial renters need more support to pay their rent in their old age.

German-style renting levels and UK-style renting regulations will make for a toxic combination. 

With housing comprising a huge chunk of total wealth in the UK, the impact on wealth inequality of falling home-ownership rates are also likely to be profound.

Perhaps Theresa May's latest homebuilding drive will deliver such an expansion in the supply of new homes that the home ownership rate will return to the heights of a decade ago. But the recent history of politicians' promises to crank up construction rates is not encouraging.

And in an era of relatively low interest rates and tighter financial controls on how much people can borrow from banks to purchase homes, there are grounds to be sceptical about how much difference even a significant increase in supply would make.

Which leaves us with a simple question: if we are destined for German-style renting levels, don't we need German-style tenant protections too?

This is why the Tories can’t solve the housing crisis: it would mean rolling back Thatcherism

Houses in Britain are perfectly affordable. They're bought and sold all the time.

Official figures show 114,180 changed hands in August alone. Over 2016 as a whole, 1.2 million homes were acquired.

The problem is that houses are not affordable to the people who we want to be able to buy them, mainly people under the age of 40. As we all know, average house prices have been stretching further and further away from average wages, making it ever harder to get on the housing ladder.

When the baby boomers hit 30, their home ownership rate was around 55 per cent. When people born in the 1970s reached their third decade, around 45 per cent owned their own homes. But for those born in the 1980s, the ownership rate today is just 30 per cent.

If you can't buy, you generally have to rent. Yet renting is a much more precarious reality for young people than it was in previous decades thanks to a slump in the supply of new social housing, the scrapping of rent regulation and a law change in 1988 allowing private landlords to eject tenants at two months' notice.

Renting is also more expensive than it was in the past, swallowing up 28 per cent of the incomes of those in their late 20s, up from just 13 per cent of equivalent incomes in the 1980s.

This is our housing crisis: collapsing home ownership rates for those aged below 40 and insecure and expensive renting.

The policy solutions can be loosely labelled: tax, law and supply. First, taxation reform to curb the incentive to view housing as a financial asset, something that has put considerable upward pressure on prices in recent decades. Second, greater rights and security for renters under the law. Third, planning liberalisation to facilitate a greater supply of private homes and bigger government grants for the construction of many more social ones.

This programme should, over time, bring down prices relative to average incomes and also improve life for tenants in the interim.

But the Conservatives have huge problems when it comes to delivering any of this. Significantly more social housebuilding would meet stiff resistance from the dogmatic small state caucus within the party.

Reform of the 1998 Housing Act and new regulatory curbs on rent increases would anger landlords, a category that includes more than a quarter of Conservative MPs.

Taxes on undeveloped land to spur construction rates would be fought by private house-builders, who have been major party donors. Green Belt liberalisation, to remove an obstacle to construction and reduce the price of land for develop, would scandalise the Campaign for the Protection of Rural England and the Conservative-supporting Daily Telegraph. Proper reform of property taxation, making council tax proportionate to house values, would send the wealthy homeowners of the Tory heartlands ballistic.

The Conservatives have finally woken up to the fact they need to make an offer to people under the age of 40 on housing, or see them turn to Labour in ever greater numbers. Yet to do anything serious would also alienate these key Tory support bases. "Their problem is a structural one," points out the economist Chris Dillow.

This bind is why Theresa May risibly dressed up trivial sums for more social housing last week as some kind of spending splurge. This is why we have another £10bn of taxpayers' money thrown at Help to Buy, a mortgage subsidy scheme that primarily benefits housebuilders.

Yet the Conservative Party's problem is even greater than having to upset traditional supporters: there's an emotional and ideological block.

Housing was central to Thatcherism, from Right to Buy on council homes, to stripping councils of their role in building social housing, to mortgage-interest tax relief, to lifting rent controls, to privileging landlords in the law, right up to the poll tax which abolished the progressive property rates system. It was an ideological project, to create a "property-owning democracy" and to supposedly predispose the electorate to reject "collectivist" policies.

But the failure of this project means we increasingly have the democracy without the property ownership.

And those collectivist policies brandished by Labour look increasingly appealing to the under-40s.

For the Conservatives to do what needs to be done on housing requires them now not only to take on powerful vested interests within their own party but to roll back the original Thatcher revolution on housing. It means coughing up to a series of historic mistakes.