The demand for housing as an investment

Authored by Josh Ryan-Collins

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The demand for housing as an investment: Drivers, outcomes and policy interventions to enhance housing affordability in the UK | policy report no. 2024/13. 

Authors:

• Josh Ryan-Collins | Professor in Economics and Finance | UCL Institute for Innovation and Public Purpose (IIPP)

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Summary:

This report, commissioned by the previous UK government's housing ministry, examines the role of investment demand for UK housing and its contribution to worsening affordability over the past 40 years.
 
The report examines how government policies in the spheres of financial regulation, property taxation an housing policy have contributed to the ‘financialisation’ of housing with its role as an investment good overriding the UK population’s housing needs. The UK has become locked in to a “housing-finance feedback cycle” where increasing financial flows into housing generate rising prices, and expectations of future rises which in turn generate more speculative demand for housing as an investment. This includes buy-to-let and second homes, with 1-in-5 homes in the UK now owned by landlords and homeownership for younger cohorts in rapid decline.
 
To break this feedback cycle, the report makes a series of policy recommendations on how to make the housing market more affordable, including:

• A major reform of the UK property tax system, abolishing council tax and stamp duty and replacing them with annual property tax on the value of the home
• Planning reforms to limit the conversion of primary residences into rental units, second homes or short-term lets
• Local authorities and housing associations being given right-of-first-refusal to purchase properties coming up for sale and convert them to social rent in areas of housing need
• Compulsory mortgage insurance and longer term fixed-rate mortgages for first-time buyers to make mortgages more affordable for first-time buyers alongside tougher regulations to limit demand for Buy-to-let mortgages

Reference:

Ryan-Collins, R. (2024). The demand for housing as an investment: Drivers, outcomes and policy interventions to enhance housing affordability in the UK. UCL Institute for Innovation and Public Purpose, Policy Report 2024/13. Available at: https://www.ucl.ac.uk/bartlett/public-purpose/policyreport-2024-13.