Pros & Cons #6: Buying A House

House ownership is traditionally seen as a sign of steadfast finances and, well, a settled life. So why did 2017 see house ownership in the UK fall to a 30-year low- and is this really a problem?

House ownership among the British population has been in decline over the past decades, culminating in the home ownership rate of 62.9% in 2017, according to the English Housing Survey. This is the lowest ownership rate since 1985, the midst of the turbulent Thatcher premiership. This decline comes despite efforts of successive recent Conservative governments to push home ownership through various incentives (for example, the Help To Buy policy designed to help first time buyers get on the property ladder).

So, why is home ownership at such a low level? The Institute for Fiscal Studies (IFS) asserts that the youngest adults in society are those at the greatest disadvantage compared to those of their age in previous decades. The purchasing power of the young has been disproportionately hurt by the failure of incomes to keep up with the rising costs of living. According to the IFS, "almost 90% of 25-34 year-olds faced average regional house prices of at least four times their income, compared with less than 50% twenty years earlier".

fig.1 - source: Resolution Foundation

Research from the Resolution foundation (fig.1) suggests home ownership among 25-34 year olds is currently at its lowest rate since the 1960s.

Other factors also contribute to the decline in home ownership- for example the decline of construction of new homes, foreign investment in large city centres (both of which have contributed to high prices), and also a changing attitude among the younger generation towards home ownership. Even among those who have the financial capacity to purchase a home, the decision to go ahead with the purchase is becoming less clear cut.

Germany is known for its renting culture- a 2013 study found just 43% of Germans were homeowners- and it could be possible that in the long term, the UK is heading in a similar direction. So what should you weigh up when deciding whether or not to purchase a house?


PRO: Your (Relatively) Stable Asset

The belief that home ownership represents stability is not an old wives' tale- indeed, owning a home means that you own an asset that, in usual circumstances, should be reliable and in fact increase in value over time.

What's more, when you own your home you have full autonomy over what you want to do with it. Renting leaves you dependent on your landlord- if they don't want you to put a nail in the wall to hang up a family photo, you can't. Although there are laws to protect those who rent (tenants), the landlord can also make you leave the property, even against your will. No one can do this to you if you live in a property you own (except the bank, if you don't keep up with your mortgage, that is).

Owning a house leaves you with a fall-back in case of financial catastrophe- it is a valuable asset that you can sell to downsize and shore up emergency funds, or sell to have a helpful hand further up the property ladder. A common practice among people approaching retirement age is to sell their home and downsize- leaving them with a tidy financial benefit to enjoy retirement with.


CON: Responsibility

As the saying goes, "with great power comes great responsibility"- and a house is no exception. Owning a house means you are responsible for it completely- you've got to deal with any issues that arise, whether that means a broken window or a fault in the structural integrity of the whole building. If you don't invest where necessary in the maintenance of your home, the value could tank.

On the other hand, tenants enjoy the freedom to pass over (most) issues of maintenance to the landlord, who has the responsibility to sort these things out. Furthermore, while the tenant doesn't take a share of any increase in the value of the property they are renting, the tenant is also protected from any fall in value- it is the landlord who has to absorb this cost.


PRO: Favourable Finances

Depending on when you purchase your home, you can benefit financially from favourable economic conditions.

The most common advantage taken by homebuyers is low interest rates- these are influenced largely by the base interest rate set the Bank of England, which essentially uses it as a tool to either stimulate or reduce demand in the economy. Low rates mean borrowing is cheap, encouraging people to take out loans to purchase houses, generating more activity in the economy.

Furthermore, taking up a fixed interest rate enables a clear idea of payments that are to be made over the time of your mortgage- as opposed to renting under a landlord, where the rent can change upon their whim. Home buyers need to decide, however, whether a fixed or variable (changing) interest rate suits them best- a variable rate helps when the Bank of England lowers its rate during the period of the mortgage, but increases costs should the Bank of England do the opposite.


CON: Lack of flexibility

Purchasing a home is not suited particularly well to a young generation that is more mobile than ever. A 'job for life' was a reality for previous generations that has become increasingly rare for today's youth. This is due not just to increasing job insecurity, but a young workforce that is more willing than ever to relocate regularly- in part thanks to phenomena such as social media tying people down less to 'home'.

Purchasing a home is neither a short nor flexible process- the average mortgage repayment period is 25 years. On the other hand, most renting agreements are 12 months long. Thus, renting offers a more appealing and feasible option to young people who may be changing careers every 2-5 years, or those hoping to upsize their home relatively soon.


PRO: Satisfaction

Studies indicate that home ownership brings a greater sense of security and happiness- a YouGov poll from 2017 found 73% of home owners to be satisfied with their standard of living, as opposed to just 53% of renters. 

What's Wrong With Airbnb?

In the past decade a new wave of Silicon Valley start-ups have exploded into prominence, becoming part of our daily lives. Along with companies like Uber and Netflix, Airbnb is one of the top influencers in this new generation of businesses. But not all is as rosy as it seems...




The concept of Airbnb is very simple.

Source: Busbud.com

People can put their homes, apartments, lofts, spare rooms, even garages up for rent, and anyone can book them on a nightly basis. With over 2 million listings across more than 191 countries, the expansion of Airbnb has been incredible. The popularity is due to a number of reasons- not least of which are the facts that using Airbnb is incredibly easy, and, on average, a cheaper option than alternatives like booking a hotel room. It also gives people going on holiday or with spare rooms a chance to make an extra buck.

So, on the face of it, there do not seem to be any significant issues with the concept. However, the scale of Airbnb has meant that it has had rather significant implications on the property markets in which it operates. Put short- Airbnb is contributing to the economic cleansing happening in city centres throughout the world.

Economic cleansing is perhaps a rather emotive term to use, but this is, in essence, what has been happening, as landlords have sought to take advantage of the more lucrative short-term let market that it offers.

To realise the impact of Airbnb, some rough context of the property market is necessary. You've got two types of property rentals: short-term lets, and long-term lets. Long-term lets are usually taken out by people for whom the property becomes their home, whereas short-term lets are more common for vacationers. Here's the thing: short-term lets, due to their short nature, are more lucrative for landlords than long-term lets. But they come with the risk, that they are not guaranteed- while a long-term renter will mean you have someone always occupying your property and paying rent, relying on short-term rentals could leave you as a landlord with dry periods.

But in comes Airbnb, making it easier than ever for people to find short-term lets wherever they are going. The result of this is that fewer travellers choose to stay in hotels*, instead opting what may be a cheaper, or more unique Airbnb rental. So demand for short-term lets is increased- meaning landlords face less risk of facing that dry period in between short-term lets.

Seeing this risk reduced leads to many landlords deciding to pursue lucrative short-term lets- this means that many landlords will have to evict their existing long-term tenants. So, this happening on a large scale means that many people will be left looking for housing in city centres, but there will be fewer properties to choose from- because many landlords may have converted theirs into short-term exclusives. So, in a city there will be more demand for housing, but less supply.

There are significant housing crises in many of today's
major cities. 

Whenever there is more demand and less supply, prices rise. People become desperate to find housing, and the landlords still renting long-term know this- so they can jack their prices up and still find a renter. This results in significant numbers of poorer people (and even people who'd be considered well-off elsewhere) being forced to leave their area in search of affordable housing.

Most demand for Airbnb lets, and generally the most expensive/desirable areas of a city are in the centre- so this is where people are being forced out, 'cleansed', from. London, for example, is an example of a city where such 'economic cleansing' has taken place, due to a severe lack of affordable housing. Since 2011, London rents have increased by a staggering 48%, compared to incomes rising by just 11%. New York City and San Francisco face similar troubles, with housing in city centre areas becoming increasingly out of reach for those not on 6 (or in many cases even 7) figure salaries.  Of course, Airbnb is not solely to blame for this- foreign investment and failed government policies are both arguably more responsible- but amazingly, the success of this one company has had the power to exacerbate these crises that exist.

The problems caused by such a crisis are wide-reaching: homelessness, work issues and strain on infrastructure (for example, trains) are just a few.

This problem is why many cities seem to be waging war against Airbnb, using their weapon of regulation. For example, it is illegal in New York City to rent out a full apartment for fewer than 30 days**. While such regulation was previously battled against tooth and nail by Airbnb, it seems to have taken on a different tune just this month; dropping the lawsuit it took against NYC regulators, and even agreeing to abide by similar regulations in London and Amsterdam.

* Recent study by Zervas, Proserpio and Byers in USA concluded in their study of Texan demand for hotels that Airbnb's entrance into the market "has had a quantifiable negative impact on local hotel revenue". Click here to view the study.

** No doubt, it's important to remember there is a high possibility that such regulations are also being lobbied for by the hotel industry- just a thought.