Housing market is allocating a scarce resource efficiently

The issue of getting onto the housing ladder is by no means new and buying one’s first home has never been easy. When I did so in 1988 I bought a two bedroom flat in East London in partnership with my then girlfriend (now wife) and with a good deal of help from the ‘banks of Mum and Dad’. We were limited by affordability as interest rates were very much higher then and our mortgage payments left us with very little spending money. Prior to this we had both lived in multi-occupancy rented accommodation since leaving home.

Some weeks ago in your pages Richard Digard advised that the average amount of money required by first-time buyers in Guernsey was £53,000. I commented at that time that two people wanting to buy their first property together at the age of 30 (the average first time buyer in the UK is 32) would need to save and invest approximately £150 per month each throughout their twenties to avoid the need of the B of M&D. This is not an undoable amount for many, though I appreciate it may be a stretch for some, especially where they are paying high rents at the same time. A mortgage of 90% on Alex’s average flat price would be about £1,100 per month. Not nothing but affordable.

I will pass over Alex’s generalisation about landlords abusing their position other than to point out that there is little sign from the UK (where rental market is substantially regulated) that increased regulation provides much relief as a number of younger members of my extended family can testify. Actually I know a number of landlords and have seen little evidence that they are all bad, though some undoubtedly are. Every journalist these days seems to need a scapegoat.

When citing comparisons it helps to ensure that one is comparing apples with apples. The EU covers a very wide range of markets and economies, and is not a proper comparison for Guernsey – a small island where property is in limited supply and the economy relatively successful. Consequently property is constrained and expensive. A better comparison would be a major, successful city like, say, London where the proportion of income paid in rent is about 50%. London seems to have no problem attracting talented people. I should also mention that the EU figure cited includes those living in multi-occupant accommodation, bedsits and the like – not something you are including in your local comparator.

Although not as plentiful as we would like, shared rented accommodation is available in Guernsey for less than £1,000 per month per person (I just googled and there was some). Adding £150 saving to this would mean overall housing costs (current and future) below 50% of average take-home pay in Guernsey and in line with the mortgage costs of buying. Of course, there are other costs of ownership to take into account also. Again this does not apply to the low earners in our community whose housing needs must also be addressed through social support which I am not commenting on here.

The assertion that the employment market as applied in the public sector to teachers and nurses does not pay value-based wages may well be true but is not a function of the housing market. It simply shows how suppressing the market through abuse by a monopolistic buyer can lead to sub-optimal outcomes in terms of under-paying key workers. My sympathies are with the employees involved, as are many others.

I must thank Alex for reminding me of Maslow. It took me back to university where I did a couple of courses in sociology. To be honest, even then he was seen as a little old-hat. However, to argue that people in Guernsey are struggling to meet their physiological needs, or even their safety needs as Maslow defines them, is a stretch in modern day Guernsey. Try convincing a third world aid worker of that, let alone the people they are helping.

And so we come to where Alex looks to blame the ageing population for something. I am not clear what point he is looking to make about the housing market here, and his passing comment about ‘low tax policies’ is as much a non-sequitur as it is simplistic, and unsubstantiated in the context of the piece.

The market is not broken. It is doing its job of allocating a scarce resource efficiently. That the outcome of this is not ideal to all is not a market failure but the natural result of any market; we cannot all get everything we want – that is the consequence of living in an island with a limited supply of property.

Of the policies mentioned, some are sensible but all and any subsidies, and most additional regulation, will only have the affect of raising prices and/or limiting supply. So three specific policy suggestions:

Saving for deposits is to be encouraged. However, there is no shortage of options to do so in an efficient way (see www.wealthify.com for an option with strong Guernsey links) and no need for the government to provide such facilities. I have, however, advocated elsewhere the idea that saving for housing deposits is akin to long term financial planning and should attract similar tax deductibility to that afforded to pension contributions. Perhaps RATs could be extended for use in this way?

Shared ownership schemes are of limited value if they do not provide the potential to increase ownership over time including the potential to become the sole owner in due course. Partial ownership properties in the UK do not keep step with sole owned property markets and, therefore, provide limited benefits to the occupiers as a stepping stone towards full home ownership. Such schemes should always include the ultimate potential of 100% ownership.

Increasing supply is the main solution as Alex says. However, no further incentive is needed for developers – they seem not to be in short supply and to be doing very nicely. The imposition of significant ‘nice-to-haves’ such as solar panel tiles and car charging points on new builds will drive additional costs (and increased prices) whilst being out of kilter with the paucity of significant green policies elsewhere in the local economy and community. I hardly think this will help reduce housing prices. Efficient building methods are already much in evidence here – just pop own to Guelles Road and see the pre-fab methods being employed on the site in front of Amherst School. I do not believe there is any problem with the building industry here being reluctant to build.

I agree with Alex’s re-zoning suggestion though we should perhaps start with brown field and urban sites rather than greenhouses (these latter could be used as platforms for solar farms though. After all the ultimate product is electricity and there would be no problem utilising the sites to grow bio-fuel.). This will need a rethink on issues such as heritage and the reimagination of what a town centre should be, and why particular places are zoned as they are, especially those in States ownership. Where re-zoning takes place there needs to be care taken that the effect of this is not to hand a huge bonus to those that happen to own it. All the financial benefits of re-zoning should be for the community.

As a final aside, when we came to sell our first flat after five years, it had lost 40% of its value. Be careful what you wish for.

DOM WHEATLEY