As the saying goes, a man’s home is his castle
There is no one factor more representative of the economic well-being…
…of the American citizen than the home in which he lives
It’s not just the American Dream
Across the rich world people have been told…
…they should be buying their own home
Now’s the time to buy a home
Get on the housing ladder
Starting from under $60,000
Help to Buy is helping people get their foot on the housing ladder
Owning a home is a part of that dream
But why is there this pressure to get on the property ladder?
People don’t really question the idea that home ownership is a good thing
It’s something that they’ve always been told and assume it must be true
The obsession with home ownership has had unintended consequences…
…which have not only distorted the housing market…
…but brought the financial system to its knees
The realisation of the American Dream, the envy of the entire world
This is Tim. He rents in London
This is Diyana. She rents in Zurich
Tim is 30 and works in sales…
…and he’s desperate to get on the property ladder
It’s incredibly frustrating not to be able to own something of your own
But Diyana is in no such rush
I’ve been renting for the whole 20 years since I came to Switzerland
Diyana rents this apartment with her twin sons and her partner
She works as a lecturer at a university
We’ve been here for three years and it’s really home for us
Switzerland has one of the world’s most competitive economies…
…and the people who live here enjoy a very high quality of life
You would think that would mean that most people...
...would own their own home
Far from it
At 38%, Switzerland has the lowest home-ownership rate in the OECD...
...a group of mostly rich countries
In Britain it’s much higher
Two-thirds of houses are owned by the people who live in them
According to The Economist’s house-price index…
…the Swiss housing market is considerably more stable than Britain’s
A house in Switzerland is worth just 70% more today than it was in 1970
In Britain prices have increased by 346% in the same period
There is evidence to show that ownership rates and market volatility...
...are connected
To understand why, we need to go back 100 years
At the beginning of the 20th century the majority of people…
…in Britain, America and other developed countries were renters
In Britain, for example, just one-in-four families owned their own home
But after the second world war many governments…
…across the rich world made a monumental shift in policy
They decided to create nations of home-owners
The idea was that if you’re a home-owner…
…when you retire you can sell your home…
…and you can maybe live off the proceeds of that
Or if you lose your job…
…then at least you’ve got some assets which you can sell
Policies such as low-interest loans, tax breaks on mortgages…
…and relief on capital-gains tax were put in place to promote home ownership
All of which add up to quite a big kind of, in effect…
…a subsidy from the government for home ownership
From the 1950s home ownership shot up
As did the amount of money banks gave in mortgages
By 2008 mortgage lending was worth 63% of rich countries’ GDP
But in the long run…
…this new world of home-owners created more problems than it solved
Financial catastrophe triggered
No one, it seems, can stop the bleeding
The big, massive global financial crisis of 10 years ago was a housing crisis
As home-owners defaulted on their mortgages at record rates…
…it was clear trouble was…
For a lot of people in America…
…they thought they were making a sensible financial decision…
…by becoming home-owners…
…and that turned out to be completely wrong
The crash was a disastrous consequence of the home-ownership boom
But the damage caused by encouraging people to buy their own houses…
…runs far deeper than financial crises
The fundamental problem is to do with lack of supply
The whole rich world today builds, like, half the houses…
…per person than it did in the 1960s
The decline in construction has been kind of concentrated…
…in the parts of the country where you’d most like it to increase
So in those like rich, dynamic, productive, cool cities
Since the first day I arrived in London…
…I’ve been looking at house prices
I think there’s an innate human drive…
…to own something and to call it your own
But when people do buy their own home…
…they’re more likely to resist further development in their area
Christian Hilber has extensively researched the impact of this mentality
In a country where the home-ownership rate is very high…
…home-owners are so-called NIMBYs, “not-in-my-backyard” residents
They try to protect their asset values by limiting a new supply
They vote for politicians that enforce restrictive planning…
…that leads to unresponsive supply
So if the economy is booming and supply cannot respond, it raises prices a lot
So in countries like the UK or the US…
…where home-ownership rates are fairly high…
…these countries tend to have policies that favour home ownership…
…and tend to have planning systems that lead to inflexible supply
There is always this question of we’d like housing for young people…
…but we’re not going to let it ruin our neighbourhoods
I think this mentality, this snobbery, is absolutely out of control
That has to change because people in the millennial generation…
…aren’t able to get the basics they need in life, such as a house
The failure to build, in particular in cities…
…has also held back productivity and harmed economies
When you’ve got expensive housing…
…it means it’s hard for people to move to those cities
And when it’s hard for people to move to those cities…
…it means that they struggle to get the jobs that they want
And what that basically does is constrains…
…the growth of the overall economy
Home-buyers are less likely to become entrepreneurs…
…and less willing to move to find work
Research has shown that historically an increase in home ownership…
…in America has been followed by a sharp rise in unemployment…
…as people are reluctant to relocate to find a new job
The financial crisis put an end to the growing rate of homeowners
Weak-earnings growth and tighter restrictions on mortgages…
…have made it much harder for people like Tim to get on the housing ladder
Politicians are worried about declining home ownership
We’re helping every American find their path to the American Dream
But, in fact, having more renters may not be such a bad thing
There is this perception across much of the world…
…that homeowning is better than renting
It creates a more stable, better society
In reality, there’s only very weak evidence that home ownership…
…kind of creates better citizens
Supporters of home ownership often cite Singapore…
…as an example of a highly stable country where ownership is high
There, 91% of the population own their own home…
…and it comes 9th in the world on the UN’s Human Development Index
But if we look at Romania, there the home-ownership rate is even higher…
…but it comes much lower in the world in terms of development
Which brings us back to Switzerland
Here, few own their own homes…
…yet it is one of the most developed countries in the world
Switzerland also has a system which benefits renters like Diyana
Renters’ rights are protected…
…leases can last as long as 20 years and prices are stable
In all those years we had never get an increased price
Even once, you could make the request to our landlord…
…to reduce the price because the reference interest rates were also reduced
And according to the law, we just wrote a letter, very short
And three months later we got the new lower price
I think Switzerland is special with regard to its rental law
I wouldn’t feel so secure in another country
Renters feel very insecure in this country
We don’t feel we’re getting a good deal
We don’t feel we’re getting good value for money
My main incentive for wanting to buy property is…
…to stop throwing away money every month on rent
This is a common argument against renting—but is it true?
In 2018 renters across most of the rich world did spend more…
…on rent than homeowners spent on mortgage repayments
But to see the full picture, we need to look at all the costs over a longer period
Let’s imagine someone choosing between renting or buying in Britain
If they decided to rent…
…they would give one payment to a landlord every month
But if they decided to buy, their costs would include mortgage repayments…
…plus interest, which can fluctuate…
…and then a whole host of additional costs…
…such as transactional costs, buildings insurance, and maintenance
Once you add up all of those costs…
…there are times when renting is a better deal…
…and there’s times when home ownership is a better deal
And that depends quite a lot on the interest rate and the economy
But both the theory and the evidence suggests that renting…
…and buying a property end up costing about the same amount…
…over the long run
The question of which is better ultimately comes down…
…to a personal preference
But the idea that one is inherently and objectively…
…better than the other is not true
Investing in bricks and mortar isn’t always a safe bet
While many have gained from increasing house values since the 70s…
…those who piled into the American housing market…
…at the peak of the bubble lost out
Despite this, rich-world governments continue to invest…
…in promoting home ownership
In America and in many other countries there is what’s known…
…as mortgage-interest deduction
This is where home-owners can offset the interest on their mortgage…
…against income tax
The US spends about $100bn a year…
…on the mortgage-interest deduction in the form of forgone tax revenue
And the net effect of the policy on home ownership is essentially zero
Christian also looked at a British policy called Help to Buy…
…which is a form of equity loan from the government
The Help to Buy policy is a very ineffective policy
We found that Help to Buy in the Greater London Authority…
…increased house prices by more than the implied subsidy…
…and it didn’t lead to any new housing construction
The case for the government…
…spending all this money on promoting home ownership is quite weak
And they could be putting that money towards…
…education or transport or health care
Rather than creating a stable society…
…home ownership has been the West’s biggest economic-policy mistake
Attempts are being made to redress the balance
America has capped its tax break on mortgage-interest deduction…
…and Britain has banned letting agents from charging renters’ fees
…and Britain has banned letting agents from charging renters’ fees But that’s not enough
But that’s not enough
It’s time to build an entirely new housing market
One that actually works