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Entry-Level Home Ownership

This was my entry to the 2018 Richard Koch Breakthrough Prize. It wasn't shortlisted but I'm proud of my entry and still maintain that it is the best free-market solution to increasing home ownership and driving the building of new homes. With a competition like this it's impossible to second-guess what the judges are motivated by and they can award their money to whomever they like. Plus it's most unlikely that the wealthy judges of the competition have ever had to live in a bedsit or shared house and therefore regarded my solution as too down-market for them, disregarding the fact that millions of people have to live like that right now.

There are, of course, far better government-led solutions to sorting out the failed farce that is the UK housing 'market' but that's not what the competition judges were looking for.

The winner was well written with good English and a vibrant passion, but on reflection has many issues that make it entirely unrealistic and contradictory:

It draws upon a report by Savills which claims that up to 2 million homes could be built on government-owned land. Actually, that report says no such thing, giving a figure of 600,000 on central-government land but not necessarily where the greatest housing demand is. It says that 300,000 homes could be build on NHS land following a 'consolidation of the NHS estate' - in other, closing hospitals. The competition stipulated that the proposals should be "politically possible" but closing hospitals is never politically easy and often downright impossible, as indeed it ought to be. Then there is a claim that 1 million homes could be build on local authority land (not mentioned in the Savills report); perhaps it could be - here in Sheffield tens of thousands of homes could be built on Graves Park, Millhouses Park, Endcliffe Park and Norfolk Park, not to mention the numerous huge munipal cemetries owned by the Council - but for quite obvious reasons that would be politically impossible.

The essay then states that it would be up to the government to decide who would be eligible for all these new homes. The article was supposed to offer a free-market solution yet the winner calls on the government to decide who gets first dibs.

The Savills report also states 100,000 news homes could be built on government land in London but that this land is "in operational use". They refer to Fire Stations and other buildings currently in use and then go on to suggest that these 100,000 homes would be blocks of flats built over the existing operational buildings. What utter nonsense!

I don't begrudge the winner for bluffing his way to 50k, drawing on a rather bogus report, making up unquoted statistics and masking the government-led aspect of his plan inside a barrage of free-market love-in language. I tried that last part in my essay but it wasn't quite enough!

Right-wing politics really is for dummies.

Richard Koch Breakthrough Prize

What market-based, popular policy would you recommend to alleviate the UK’s housing shortage, and to rejuvenate our property-owning democracy?

The promotion of new concepts of entry-level home ownership: enabling people to purchase rooms in shared houses, and the ‘halls of residence’ model

Summary

Millions of young people at the start of their working lives rent rooms in shared houses, and bedsits. Imagine if these rooms could be bought instead; millions more people – especially to the benefit of those without wealthy parents – could join the “housing ladder” immediately and start building up equity as soon as they leave home and start working. Many young people become familiar with student Halls of Residence which consist of a room with shared facilities and an on-site canteen. Why not have the option of purchasing a room in a similar development intended for working people?

Widespread adoption of the concept of owning a room in a shared building would vastly increase the percentage of people owning property and it would be achieved entirely through the market without others having to subsidise it through taxation.

In addition, for reasons discussed below, I believe this would substantially increase new residential property building on brownfield land.

I propose two legal changes to enable this ownership model to happen.

Increasing the number and proportion of property owners in the UK

After leaving university I found myself living in a shared house with other people I didn’t know. Millions of young people at the start of their careers whose jobs mean they live away from their family home find themselves in this situation. Similarly, many live in a bedsit which has cooking facilities within the room but with shared washing and toilet facilities. Whilst I was in this position myself I came up with the idea of being able to own the room I was living in instead of renting it.

After some years the value of equity earned in the room ought to be enough to place a substantial deposit on a house or flat, thus greatly increasing home ownership for those without wealthy parents. This scheme would be THE opportunity towards home ownership for the millions who do not have the “bank of mum and dad” to draw upon.

I believe there are fundamental reasons why this model of home ownership has not been considered before, as it is not due to lack of demand given how many people have to live in such accommodation already.

The two problems with enabling this policy are, I believe:

1) The complexity of legally defining what people have purchased and the rules attached to living coherently in a shared property and,

2) Defining the status of and responsibility over the communal areas of the property

I believe there is a solution to these problems in the form of a carefully drafted legal document, along similar lines to the Shorthold Tenancy Agreement used for property letting, which will serve as an “off the shelf” standardised contract and a set of rules and guidelines for people in this position.

Not being a legal expert, I will not attempt to draft one in detail here but the concepts that it should encompass (but not limited to) are as follows:

• The requirement to contribute financially to the maintenance of the property to retain its current state of repair and for this to be subject to third-party observations and monitoring

• To be obliged to undertake arbitration to resolve disputes in the first instance and to be bound by the decisions made, and to accept financial responsibility for legal cases that go against the individual

• The requirement to contribute to cleaning and general maintenance of the communal areas

• A legal requirement not to make excessive noise and disruption at any time

• A clear and unambiguous definition of the scale of responsibility of the room owner towards their own space and that of the rest of the house. So, for instance, who is responsible for a door leading into a room – the room owner or the collective responsibility? Who is responsible if structural work is required, say, to an attic floor that supports just one dwelling space above it - the attic room owner or the whole house? And if, to continue the example, the floor was damaged by the attic room owner who decides where the liability is?

To address issues raised by the last point in particular I propose one other legal change, relating to the legal authority of property maintenance organisations.

Blocks of flats are usually overseen by a property maintenance company or residents’ association to which the residents contribute financially, and such an arrangement would be a necessary part of the shared ownership model. They would be a forum for work on the communal areas and the building structure, and would consist of the property owners along with an external advisor who would oversee general management and carry out arbitration. These forums exist already but don’t have much in the way of legal power. I would therefore suggest that residents’ associations are given definitive legal powers to affect the smooth running and oversight of houses with shared ownership. From my experience of living in a leasehold flat it became apparent that ownership and authority over the stairwells and corridors is ambiguous. I suggest that ownership of stairwells and corridors, kitchens and bathrooms is made clear and unambiguous.

All owners of the various rooms within the property would have a shareholding in the communal areas with management and oversight of these areas made under the auspices of the property management association. For structural work on the property and refurbishment of the communal areas then the property management association would oversee agreement between the homeowners.

A further development of this theme could be the formation of mutual property maintenance companies to which every purchaser of a room in a shared house is automatically a shareholder and pays a modest fee towards.

And to take this a stage further perhaps these property companies themselves could own the communal spaces in shared properties. Time will tell which model would develop but they are given here to show some of the options available for making shared properties a viable ownership model.

This concept might even increase civic engagement if people learn to take an interest in committees and associations.

Increasing the number of houses built so as to markedly reduce the housing shortage in this country

I believe this concept would increase the number of properties being built, especially apartment blocks on “brownfield” sites. This new style of ownership would allow developers to build blocks of flats similar to student housing but for sale to the general public as an option. As a result, the risk in building accommodation specifically for students would be greatly reduced. If student numbers were to decline then such buildings could be made available for the general public.

Therefore, the cost of capital to finance such developments would be cheaper and the finance easier to come by, dramatically increasing the number of properties built.

This is where the ‘halls of residence’ model comes in. It appears not to have occurred to property developers that this mode of living might appeal to people beyond university as a cheaper alternative to a standard flat.

There are two models for large apartment blocks: to have a collection of rooms sharing a large kitchen, or where the residents would have no kitchen facilities but eat at an onsite canteen. Curiously, the famous Isokon Building in London where many notable people once lived had a communal kitchen which supplied meals to each apartment via a dumb waiter.

Lower risk returns would undoubtedly mean many more investors would pile into such property development, possibly generating hundreds of thousands, even millions, of new dwelling spaces across the country. These would not have to be high rise and potentially spaces above shops and along our struggling high streets could be converted to this type of accommodation. By not having catering facilities in each apartment there would be additional flexibility of available space and lower costs for the reduced plumbing, drainage and electricity. Millions of new dwelling spaces could be created within our existing cities.

It would also be much more financially viable for investors to purchase old industrial land with derelict buildings. The cost of demolition and preparing the site for new build would entail less risk if they can put more properties in each area of square feet, be cheaper to build and be available to students and working people alike thus widening the customer base and reducing the risk. Retired people who have downsized to augment their pensions might even enjoy eating in a canteen with others rather than being isolated in a small flat, therefore creating an additional market for this housing model.

To kick-start this initiative, I believe the first priorities are to introduce the standard-form contract law I have suggested, and to strengthen the powers of residents’ associations. These changes will define clearly who is responsible for corridors and other communal spaces where presently it may be unclear. And once these are in place the route will be clear for developers and existing landlords to start selling off their properties bit-by-bit should they wish to do so. In addition, there are many suburban Halls of Residence currently falling out of favour as students gravitate towards city-centre accommodation. Universities could consider selling off Halls as they stand rather than selling off the land and seeing them demolished. And old hotels could be sold off to new part-owner-occupiers without very much refurbishment.

I therefore suggest that there are significant opportunities for converting existing buildings to this form of property ownership, and along with large developments built at minimal risk then there would be a step-change in the numbers of new homes made available, with a significant spur to economic growth along with it.

Political implications

I believe there is massive pent up demand for this cheaper model of property ownership especially for young people prior to them “putting down roots”, and whilst the situation of millions living in shared housing indicates a housing stock not suitable for today’s demographic, it isn’t going to change for some time and we should make the best of it to encourage more people to share in the wealth of the economy.

Young people with low incomes and minimal savings could start owing a piece of property immediately instead of waiting for years before being financially able to do so, if ever.
This policy would be extremely popular among the aspirational poor and would revitalise the concept of, and belief in, home ownership for all.

This model would provide young people away from home, and probably single, a cheaper place to buy. In addition, loneliness has become a big issue in recent times and the Halls of Residence model may help people socialise where presently they feel isolated.

With a greater percentage of the economy going into housing this could only serve to increase house building subject, of course, to the relaxation of planning rules and land hoarding. Perhaps at present there is a vested interest in the property shortage continuing, pushing up land prices and rents as it does to the benefit of many with significant sway over the market.

That so many people have to share kitchens and bathrooms with strangers is a consequence of the under-investment in property over decades. The widespread adoption of this part-ownership initiative will put more money into the hands of owner-occupiers and result in what I would like to term a ‘Trickle-Up Effect’ on the quality and availability of housing due to the increase in aggregate wealth in the hands of owner-occupiers. People with this greater level of equity will be aiming for the typical British dream of a suburban house much sooner in their life expectations. The expectation of home ownership would become the norm and this can only lead to a push for more housing to be built to accommodate the rising demand.

The deposit required for someone purchasing a property at this value would still be in the region of £5,000 (outside London) but given that this type of property is entry-level then it is more recession-proof than expensive property whose value depends on the incomes and assets of people generally. If someone owning a room could not afford their mortgage then the property would be repossessed only for them, potentially, to still live in a similar room via Housing Benefit. Therefore, I would suggest an additional change, to government policy, to enable this housing model to flourish: if Housing Benefit is greater than the cost of someone’s mortgage interest AND the person is living in an “entry-level” property (ie they have nowhere to downsize to) then the government should pay Mortgage Interest Relief instead of housing benefit. This way the risk to banks lending mortgages for these properties would be very low and, as such, could be provided with almost no deposit from the purchaser and at a very low rate of interest. This is not a necessary part of the plan but would help the initiative to take hold quicker.

Conclusion

I believe the outcome from these small policy shifts and a few subsequent implementations of this plan by property developers would be:

1) An increase in home ownership over the next generation from the present-day 65% to around 75-80%. The 17% currently renting from a private landlord could seek to purchase part of a property, and, later on, use the equity generated for a deposit on a house where previously they may have been renting forever (18% are in social housing).

2) An additional 2-3 million properties built or converted at the property entry-level in declining highstreets, above shops, and on former industrial and brownfield land.

The concept should have a powerful psychological effect on the nation with people believing in the right to the ownership of a decent, spacious property and not settling for whatever landlords and the government are prepared to offer. This will undoubtedly lead to more house building and greater political impetus to please a nation more emotionally invested in the notion of a property-owning democracy.

It would only take the initial success of one development for property investors and the wider public to catch on to the potential of this form of property ownership. Right now, it feels like the nation shrugs its shoulders at mass home ownership – this initiative would give the concept the shot in the arm it needs.

To finish I would like to quote Margaret Thatcher during her meeting with President Gorbachev after he allegedly told her that capitalism pits the haves against the have-nots; she replied that she wanted to create a “nation of haves”.

This policy would quickly create millions of new ‘Haves’.