Transcript Owner-occupation: its benefits and risks in different market

Owner-occupation: its benefits and
risks in different market contexts
Christine M E Whitehead
Professor of Housing Economics
London School of Economics
2015 APNHR Conference
Gwangju, Korea
9th – 12th April 2015
Different Forms of Owner-Occupation
• Debt financed – Western European and anglo- saxon model
– but increasingly important across the world ;
• Family support and self-build – model in Southern Europe
and much of the rest of the world outside major urban
areas;
• Restitution/transfer – Eastern Europe; UK and parts of
western Europe resulting in loss of affordable rented
homes;
• Government sponsored new build - South America and
many other parts of the world, including Korea and China;
• Highest rates of owner-occupation in transition economies
and emerging nations (NOT closely related to incomes).
Population by Tenure
European Union
Why Owner-Occupation: Benefits to
owners
•CHOICE – 80% plus in most of Europe still want to
be owner-occupiers
•Control over what can do with the property
•The capacity to vary expenditure over time in
relation to income, especially by paying off the
mortgage before retirement
•Lower costs of management and maintenance
•Increased sense of security
•Freedom from the landlord/tenant relationship
•Wealth accumulation? Better than alternative
investments?
•Other means of achieving similar benefits?
Benefits to governments
• Lower direct public expenditure costs
than support to rental;
• Lower long term costs, especially with
respect to pensions and long term care
as owner-occupiers have lower costs;
• More effective maintenance of homes
and neighbourhoods;
• Possible well-being/health benefits but
are these really income;
• Possible benefits of stability to the
economy and society – property
owning democracy.
Risks to owners
• Not just about debt financing models – although
these most important for world economy:
• Concerns around variations in house prices and
interest rates; fears of possession;
• Costs of moving and other transactions costs ;
• Risks associated with specific asset and location
and unbalanced portfolio;
• Management and maintenance of the stock;
• Associated costs – energy, services etc;
Risks to governments
• Labour immobility because of costs of
movement;
• Tax distortions between tenures;
• Inter-generational equity issues;
• Finance and development ‘markets too big to
fail’;
• Housing market volatility and its impact on
macro-stability;
• Few available policy instruments to manage
instability – especially when currency tied to
another – eg to dollar.
Before and during the global financial
crisis
• Large-scale property market crises (both residential and
commercial) in the 1980s (USA, Western Europe) and mid 1990s
(Asia);
• Rising debt to GDP ratios in many countries;
• Linked to increasing problems of affordability – and growing debt
among existing owner-occupiers;
• Residential sector seen as a major driver of the global financial crisis
– both because of subprime mortgage and over-indebtedness
among mortgagors and bank portfolios
• Hit countries where relatively little direct exposure - eg Germany
but most important impacts on countries with elastic supply –
Spain/Iceland/Ireland
• Particular issues such as foreign exchange denominated mortgages
– and associated inter-country risks
Residential Debt to GDP (%)
(Source: European Mortgage Federation)
Country
2003
2007
2013
EU 28
41
48
51
Netherlands
84
96
105
Denmark
65
86
94
Sweden
52
65
82
UK
66
78
81
Germany
54
47
44
France
24
35
44
Poland
5
12
21
Hungary
10
18
19
Russia
na
2
4
After the GFC
• Negative impact on construction investment levels
which have not yet recovered in many countries –
major impact on economic growth and employment;
• While households have run down debt incomes have
also fallen so ratios have not always improved;
• Access to credit remains restricted and systemic
increases in regulation are excluding many households
from owner-occupation;
• Result is that owner-occupation rates are falling but
private renting is often more expensive, less secure and
and poorer quality so rarely a better choice;
• Also, more fundamental intergenerational issues?
Home ownership rates by age: 1984-2008
(UK)
(%)
80
60
40
20
0
1984
<25 years
1989
1994
25-29 years
1999
2004
30-34 years
2008
All households
Reasons for Decline?
• Evidence from a number of countries of both
decline and volatility in homeownership rates
• Problems of affordability – increases in house
prices arising from pressure of demand from
household and income growth and from
investment demand
• Are existing owner-occupiers squeezing out
first-time buyers by their increased demands
and their involvement in Buy to Let ?
• Compare Australia in particular where overall
homeownership rate has remained near 70%
but the proportion of younger households has
been declining since 1970s – similar patterns
in Canada?
Emerging Markets
• Many countries building up debt finance models
as need to limit public expenditure increases;
• But also owner-occupation often the only option
for governments because of lack of infrastructure
for a well-operating rental market;
• Large scale building programmes with ‘rent to
buy’ or subsidised finance – especially in South
America;
• Issues around maintaining the quality of the stock
where incomes low;
• Role of public land and accessibility.
Conclusions
•
•
•
•
•
•
•
•
Most people still want to own at some stage in their lives but fewer in Europe
and America expect to do so in the near future;
The majority of households own – and own safely - with either no mortgage
or affordable repayments;
Most home owners benefit from ownership in important ways which have
little to do with increasing asset values;
But there are still significant risks especially from housing market and macro
economic volatility;
In Europe patterns of ownership are moving towards systems where
households buy rather later in life – but many fear they will never make it;
Yet homeownership is still often cheaper for households and government
than other options;
Whether the turn down in home ownership is the result of increasing
problems of affordability exacerbated by the financial crisis and increased
regulation – or whether it is because of improved alternatives - eg better
quality more secure renting - and changing tastes, especially among the
young, or both is unclear;
What is clear is that in many countries housing markets are far from
equilibrium and the new normal has not yet evolved.