COMMENT: An Englishman’s home is his castle, writes Jonathon Ivory, managing director of Atlas Residential. This well-known phrase has been part of our national lexicon since it was first used by the historian Edward Augustus Freeman in 1870 when describing the Norman conquest of England.
The literal definition of this term means a person’s home is a place where they may do as they please and from which they may exclude anyone they choose.
However, the lasting effect of this innocent expression has been to ingrain on the psyche of our nation that home ownership is no longer just necessary for security of tenure but, since the 1980s at least, also the primary path to prosperity for the majority of the population.
Margaret Thatcher made offering council tenants the right to buy their own homes the centrepiece of her political pitch to the aspiring working classes.
The effect? A surge in house prices – 16% in 1987 and a further 25% in 1988.
Roll on the 2000s, a rising population, more than a decade of steady economic growth and an abundance of cheap credit combined with a sharp fall in housebuilding contributed to create the next housing bubble, which saw average prices more than double from £100,000 in 2000 to £225,000 in 2007.
The result, not least due to the absence of capital gains tax on primary residences, is that home ownership is now firmly seen as a one-way, tax-free bet and a ladder that must be “got on to” at any cost.
This yearning for home ownership, combined with a sclerotic planning system and decades of undersupply have pushed the average house-price-to-earnings ratio to eight times – its highest since 2002.
Indeed, homeownership between middle income-earning 25-34-year-olds has now fallen from 65% to 27% in the past 20 years.
Enter build-to-rent, the panacea to the nation’s housing crisis.
Of course, no one really believes this – even BTR practitioners such as myself, despite the obvious benefits of professional management, on-site maintenance, resident amenities and the creation of the much-overused term “community”.
The real elephant in the room is this: if the accommodation and shelter of our current and future generations is solely comprised of institutionally owned student accommodation, institutionally owned BTR and institutionally owned assisted living, how on earth are these individuals supposed to accrue the necessary capital required to meet the cost of their impending care needs once they reach retirement, assuming they do not want to rely solely on the state and/or the unpredictability of their defined contribution pension?
Could one of the solutions be for BTR developers to start embracing retail investors by raising capital from private individuals via their ISAs and SIPPs?
If we accept the notion of storing nearly the entirety of one’s wealth in a single asset (ie our primary residence) as an inefficient and highly risky use of capital, then these “BTR ISAs” would allow the disenfranchised Generation Rent to participate in the income and capital growth of their built environment.
A growth that is currently being enjoyed by institutional investors without the concentration risk and hassle that is often associated with actual home ownership.
Imagine a world in which we were not obsessed with tying up all our wealth in our primary residence.
This would free up cash flow that private individuals could allocate to BTR (if they wanted exposure to that asset class) or to crowdfunding venture capital or, indeed, any number of more socially and economically useful endeavours than purchasing their own bricks and mortar.
Taking the concept of a BTR ISA one step further, what if a resident could invest in the actual property in which they lived?
Might that generate an even greater sense of community and create real stakeholders within every development?
Might the notion of being an investor in the place residents call “home” lead them to look after that building knowing that it and their financial fortunes are now linked?
If an Englishman can no longer own their own castle due to the challenges of nimbyism and mortgage affordability restrictions, then isn’t it time to encourage a solution that continues to promote the growth of BTR while also ameliorating the looming demographic pensions time bomb that faces this nation?