Jonathan Fryer

Why All the Fuss about Renting?

Posted by jonathanfryer on Sunday, 15th August, 2010

The ‘golden age’ of home ownership is ending, trumpets the Observer on its front page, as if this is a tragedy of huge importance. ‘Young people face a lifetime of renting instead’, the article wails. But let’s look at the facts, as well as my own personal experience. When I came down from university, I rented a flat in Pimlico with a former university chum; I couldn’t afford a place on my own. Then Reuters sent me to Brussels, where I rented for seven years (as many people in Belgium and Germany, more significantly, do). I returned to London in 1982 and rented, in South Kensington, before buying my first home at the age of 33. The mortgage payments were more than I could really afford, however, so two years later I sold and rented again for a while, in Tower Hamlets, before buying a house here with a friend. All these latter moves were of course during the Thatcher era when home ownership became a shibboleth (set in stone by a woman who believed anyone still using public transport at age 30 was a failure). Alas, New Labour adopted the policy hook, line and sinker. As the Labour MP Denis MacShane points out in a separate article in today’s Observer, ‘Labour was in denial over the growing crisis in social housing… Since 1997, under a Labour government, 481,530 council homes have been sold off.’ Home ownership has become a national obsession and house prices, especially in London and the South East, are now grotesque. Of course many young people cannot afford to get on the property ladder (or indeed many older non-homeowners). But the answer to this is simple, surely? Remove the stigma from renting, build more social housing for rent, scrap the right-to-buy legislation and encourage more private rentals at affordable rates too. That would also make it easier for people to move, which is an important factor in a period of greater job-led mobility.

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5 Responses to “Why All the Fuss about Renting?”

  1. Rebecca said

    Having been a tenant, owner-occupier and landlady in Belgium and a tenant and owner-occupier in the the UK, I think I’m quite well qualified to comment on this piece : )

    I agree that renting is a valid and certainly not looked down up on option in Belgium (I’ve never lived in Germany, so do not feel qualified to comment). The quality of properties to rent is generally very good and prices are reasonable. Rental contracts are usually a minimum of 3 years and often a 3-6-9 year contract, which gives a certain stability for the tenant and the landlord.

    If the landlord sells a property with a sitting tenant, the new owner must respect the tenant’s contract unless the owner or an immediate member of his/her family will reside in the property, and then at least 6 months notice must be given. During the period of a rental contract, the landlord can only increase the rent in line with inflation (“indexation”). This kind of security for tenants does not exist in the UK.

    Each time the tenant changes, a Belgian landlord must re-paint the flat and fix anything that was damaged from the last tenancy. All Belgian banks offer a “tenant deposit” account which is a special bank account with two signatures (the landlord and the tenant) into which the tenant’s deposit is placed. In the event of a dispute, the money remains in the bank. A full inspection (usually undertaken by an independent qualified professional with the costs split 50/50 between landlord and tenant) of the property detailing every mark, scratch, missing lightbulb etc at the start and end of a tenancy is standard practice.

    However, do not forget that home ownership is also very high in Belgium (around 70%) and the tax system positively encourages it (mortgage interest payments can be written off against tax. But in Belgium, the costs (legal fees and taxes) associated with buying a property are very high (15% of the value of the property compared to the EU average of 5%). This means that Belgians tend to buy only once or twice in their lifetime; typically buying a decent sized flat in their late 20s/early 30s and perhaps upgrading once later to a house or bigger flat. Belgians do not regard their homes as cash machines and borrowing on the value of your property except to improve the property or buy further properties is not only not encouraged, I don’t think it’s possible.

    I owned property in Belgium and moved back to the UK in early 2009. I initially rented, paying a small fortune for a decent sized 2 bed flat which despite being less than 10 years old had been very poorly built and maintained. I then bought a flat in London because (a) there is no security for tenants because of the very short term contracts, which can see your tenancy end abruptly or your rent increase every year (b) renting is a 2nd class option, as unlike Belgium, properties you rent and properties you buy are not of the same standard. I was aided considerably in the purchase of a flat in London by having a decent sized deposit thanks to the profit I made on selling my property in Belgium. There is possibly some irony here.

    I would therefore say that in order to make renting more attractive in the UK:

    – longer term more secure rental contracts with limits on increasing rent during the term of a contract

    – higher maintenance requirements on landlords

    If this were to happen then people would be happy to rent for longer, knowing that they were secure in their home. They would also treat the property with greater respect (I have the impression that sometimes rental properties are not treated with much respect because people are only living there until they can afford to buy and do not see them as “home”).

  2. Nonconformistradical said

    Perhaps the issue of people in Germany being quite happy to rent their homes might be a factor in their economy being in better shape than ours.

    They definitely seem to regard houses as for living in – not as investments.

    In the UK it seems to me that many homeowners have to spend so much of their income on servicing their mortgages that they have little to spend on anything else and the rest of the economy suffers.

  3. jonathanfryer said

    Rebecca — thank you for taking the trouble to make suc a detailed comment

  4. Mari said

    Sometimes it makes more financial sense to rent than to buy so why worry about the stigma. The risks are also different and personal choice, do you like to maintain a house, can you DIY, know contractor value for money or prefer to have that done. Owning a house does take a degree of responsibility and (want to) know how. If you see deflation coming do you really want to take on debt? On the other hand renting will not result in an asset, although interest only mortgages reduce that chance as well. Renting also saves you from having to fight section 20/ service charges if you only own the leasehold. That is a big issue for former social tenants who used their right-to-buy and who don’t have the education, financial acumen and/or energy left to fight unfair charges by the freeholder properly and are (at risk) being taken advantage of. It will usually take a few years to move within social housing so you do see people take pride in making the home look nice and spend money on it like they own the place. But where in Tower Hamlets do we built more social housing? People do like gardens and 2/3 bedrooms?

  5. Mari said

    Actually I am also curious what happened with the financing of regular maintenance costs of all those social housing tower blocks built in the 1970s in Tower Hamlets. Because if those social housing estates were maintained properly then the former ex-council tenants who used their right to buy wouldn’t be forced into debt they did not expect through sky high section 20 charges (even 10.000 cap is too much and then every 5 years?). So if people can’t afford as their income has stayed relatively low they are effectively being forced out of Tower Hamlets. Moral hazard here with RSLs and leaseholders who have very little say in the matter and any efforts to take action hampered by the numerous puppet residents boards so RSLs can focus all efforts on making money of private renters.

    So I would recommend any new social housing to be thought out very carefully on the finance side first especially on future maintenance costs before the corporates come in and sort out the mess their way.

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