Rentals: the £5tn bluff

I was invited recently to take part in a poker tournament organised by a public relations firm. The game was a natty way of getting youngish journalists to meet their counterparts in investment banking, stockbroking and PR in an off-guard environment.

I usually refuse these things out of hand. Meeting my peers in the City en masse is always a jarring reminder of how things could have turned out had I only been better at maths and self-belief. I should have trusted my instincts; the evening was dominated by thrusting one-upmanship that had less to do with who had the best hand than it did with securing the title of Most Important and Cleverest Square Mile Youth 2013. The jostling did, though, reveal one common frustration: the desire to own a home.

In less brilliant company, this could be better understood. But I found myself puzzled that these self-styled Masters of the Junior-verse were hell-bent on home ownership, ready to spend every penny they had – and more – on something that may yield no financial reward and which they will probably have to soon abandon when dispatched to make money in some distant corner of the non-economically paralysed world.

Even among these sharpies, owning is still, in spite of all the difficulties of getting on the ladder – mortgage requirements for first-time buyers are at their highest level for generations – the only game in town.

Britain’s inability to wean itself off home ownership is perplexing. Every other large European nation has managed to foster a sensible market for rented housing alongside traditional owner-occupation. From the sprawling ex-industrial workers’ estates of West Germany, now leased out on 30-year terms, to Switzerland’s luxury housing complexes, renting is a professionalised mass-market phenomenon. In those two countries, half and two-thirds, respectively, of all households rent. In the US, too, renting, both short- and long-term, is – certainly within the country’s metropolises – the norm.

In contrast, renting has never been considered a “grown-up” option in Britain. Rather, it is still seen, predominantly, as a stopgap between parental nest and home ownership. This view of renting as a dissolute middle ground has stunted the growth of a functional market. The country is the poorer for it. Where continental Europeans have an efficient rental market stewarded by responsible and, crucially, accountable institutional landlords, Britons have buy-to-let: the opportunistic love child of Dickensian skulduggery and pointy-shoed speculation.

The British rental model, if it can rightfully be called that, is primarily a way for the landlord to siphon some cash from his investment while waiting for the market to inflate enough to flip it. In this lies a big part of the problem. If the homeowner is renting only as a passing measure, the uncertainty inherent for any tenant makes it impossible to consider it as a realistic long-term option any more than they might a friendship with a lion.

Increasingly, though, people have no choice. Stuck between the squeeze on mortgage lending and remarkably robust house prices, rising numbers of us are being forced into renting. There are now 3.8m buy-to-let tenants – the highest number ever and the first time people in private rented homes have equalled those in social housing, according to the latest government figures.

With all this going on, now would seem a good time for the government to wade in and encourage a sensible, professionalised rental market. After all, assuming the normal course of things, those 3.8m will otherwise want to get on the housing ladder and there simply are not enough homes being built to cater for that demand. There is also financially credible investment appetite from some of the country’s largest pension funds and insurers. Eschewing the greed for capital growth, they like the idea of becoming institutional landlords because of the liability-matching income they can make from owning thousands of homes.

But the government won’t push for it.

There is too much vested interest in house prices staying high. Britain’s housing market is worth £5tn and the vast majority of its personal wealth is tied in homes. The establishment of a viable alternative would, over time, transmogrify that wealth from personal to corporate. The other, and perhaps more lofty, hurdle to institutional renting is that Britons are wedded to home ownership as much because of what it says about their status as its potential rewards. A firm demonstration of one’s importance in the world, as my poker companions showed, often matters more than quietly playing the hand that makes most financial sense.

Ed Hammond is the FT’s property correspondent

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