I recently responded to comments posted about an article I wrote for the Guardian Housing Network. A reader had made an observation about the state of the housing market and the difficulties buyers had in guaranteeing a return on their investment with new build housing.
My view was that the British public needs to fall out of love with housing as an investment and start looking at their homes as being a place to live. Pretty strange thing for someone launching one of the first social and special needs housing Real Estate Investment Trusts. I think I had better explain…
The housing market is rather stagnent at the moment and this is likely to remain the case for some time. That, however, is only part of the problem. Having owned my own home since my early 20s and having moved several times I know from my own experience that selling your 'investment' is complex. It can also be a lengthy affair even in a buoyant market.
Housing is a highly subjective issue and selling a house relies on you being able to find a willing buyer that shares your love for that particular property. They must be persuaded that the house meets their needs and that your valuation is fair. Location, decoration and landscaping all plays a role.
While a residential property investment can be a wise move it also presents a liquidity challenge: recovering your investment takes time and often the outcome falls short of expectations.
To make matters worse, deposit levels currently required by lenders are making it hard for first-time buyers to get their foot on the ladder. Long-term savings are at risk for those who fail to keep up their mortgage payments and distressed sales recover at best 75% of the original purchase price.
To pour more water on the notion that it is wise to invest in your own bricks and mortar; part of the crisis we now face has arisen from "home investors" releasing equity from their home to fund a lifestyle beyond their needs.
My critics will say that investing in your own home is wise because the house price index shows that house prices over the long term do rise and that the long term gains outweigh these considerations. Others will say it is the aspiration of all to own their own home. Having been bought up in council housing, I believed this to be the case myself.
However, the housing market’s performance over the last couple of decades has been predicated on a housing shortage. The laws of supply and demand have led to a steady growth in house prices. Despite the challenges of liquidity it looks like a good investment on paper. But as part of the government's response to the recession, house building looks set to accelerate and this will begin to affect the supply curve. The point of equilibrium will shift as and the rate of price rises will begin to slow down.
In other countries, home ownership is not considered the be all and end all that it is in Britain. Many people consider their home as a place to live – nothing more. In a rental market it is easier to move and easier to find another person to pay the rent. Housing for rent, if managed properly, seldom lies empty because people do not have to satisfy mortgage requirements, find and risk a large deposit or face losing their home if their circumstances change. Thankfully we have a safety net for that: the housing benefit system.
I suppose we like to own our houses because it makes us feel safe and of course we can personalise it to meet our own taste and needs. Yet all tenants which live in properties that I have invested in have standard assured tenancy agreements and can, subject to using properly qualified contractors, make the changes to their home as they wish. The objective is to encourage tenants to stay.
Investing in bricks and mortar still represents a sound investment decision but the way that we do it has to change. Housing for rent gives a good steady income to those who invest in it and the new residential REITs offer a great opportunity to do so. Investing in one provides a return but without the risk and liquidity issues of buying your own home.
My point is that we can achieve a balance. By further extending the rights of tenants and by establishing a working balance between the needs of investors (private individuals and institutions) and the needs of people to have a place to call home.
The Houses4Homes REIT will achieve this balance. When we reach the point of floating it, it will provide an alternative investment opportunity in the residential housing market. Just to be absolutely clear what we want to achieve, it will be called ‘Houses for homes’.
By Phil Shanks, CEO Houses4Homes