Exploring the Ethical Dimensions of Buy-to-Let Investment.
The town of Northampton has witnessed a profound transformation in its housing landscape over the last few years, and the surge in private renting has led to significant debates about the morality of the buy-to-let market.
Let us look at the current statistics compared to 40 years ago to show the seismic shift. Looking at our local authority area of West Northamptonshire Council.
33,000 West Northamptonshire Households are in the Private Rented sector now, representing 19.12% of all homes in our local authority area.
Interesting when we compare this to the 1981 numbers for West Northamptonshire.
In 1981, 7,805 West Northamptonshire Households were in the Private Rented Sector, representing 7.87% of all homes in the local authority area.
This has started prompting discussions about the role of the Baby Boomer Generation in exacerbating the housing crisis and the ethical implications of the buy-to-let phenomenon.
This article delves into the factors contributing to Northampton's housing challenges, examines the generational economic imbalance, explores the history of housing policy, dissects the impact of financial deregulation, and evaluates the moral questions surrounding the buy-to-let market.
Generational Imbalance and Economic Disparities
The housing crisis in Northampton has ignited a debate over whether the Baby Boomer Generation, aged between 59 to 76, bears responsibility for the present situation. Born after World War II, this generation experienced unparalleled economic growth and prosperity during the 1970s and 1980s, benefiting from improved education, government subsidies, rising property prices, and technological advancements. However, critics argue that the success of Baby Boomers has contributed to a generational economic imbalance, leaving their children struggling with soaring rents and burdensome mortgages.
A Glimpse into the Past of the Northampton Property Market
To comprehend Northampton's current housing challenges, one must trace the key events that shaped its housing market. The mass construction of council housing during the 1950s and 60s, followed by the selloff of many council houses in the 1980s under Margaret Thatcher's Government, is blamed by many for their role in altering the market dynamics.
To give you an idea of the number involved …
24,811 West Northamptonshire Households are now in the Social Housing sector (Council Houses & Housing Association), representing 14.37% of all homes in our local authority area.
Interesting when we compare this to the 1981 numbers for West Northamptonshire.
In 1981, 30,123 West Northamptonshire Households were in the Social Housing sector, representing 30.36% of all homes in our local authority area.
As you can see, the numbers are not seismically different, are they? So, what are the other issues that caused this?
The early 1990s witnessed skyrocketing interest rates (15% at one point), leading to widespread repossessions in Northampton (and the UK as a whole). This was one of the catalysts that contributed to the underlying housing crisis of today.
Financial Deregulation and Buy-to-Let Investments
Another catalyst was risky lending practices in the UK and USA. In the early 2000s, UK Banks started introducing 100% mortgages and even riskier lending practices, with Northern Rock lending 125% mortgages (and we know what happened to them).
All this lending was built on the back of ‘derivative swaps’ between all the world's banks (they would sell the debts (i.e. mortgages) between each other to make money).
The problem was that many of these derivatives contained lots of safe, low-risk low-profit mortgages and some high-risk profitable ‘sub-prime’ USA mortgages. This had been caused by a change in the law in the USA in the mid-1990s with the easing of lending rules in the US through the Community Reinvestment Act in 1995, which allowed for sub-prime lending.
So, when the money markets started getting cold feet in 2007 because the banks didn’t know if their derivatives had a small or large number of high-risk sub-prime mortgages, the banks stopped lending to each other (because they were worried they wouldn’t be paid back as many of these sub-prime mortgages were defaulting in 2006/7 and being repossessed).
This had a ripple effect on the UK's housing market. The UK banks had much smaller funds to lend out (because they could borrow money from the money markets for the reasons above), so they stopped lending to high-risk UK borrowers (i.e. 95% first-time buyers), whilst at the same time they increased lending to lower-risk landlords with buy-to-let mortgages with a 25% deposit and a stable income.
Millennials and the Buy-to-Let Controversy
The millennial generation, born between the mid-1980s and late 1990s, has been particularly affected by the surge in buy-to-let investments. These young adults, shaped by the digital revolution, need help entering the property market due to competition with buy-to-let landlords. Critics often portray Northampton landlords as greedy individuals capitalising on the housing crisis, exacerbating the sense of social despair among millennials. However, as I wrote in the Northampton property blog a few weeks ago, 64% of Northampton landlords are not increasing their rents. (If you want to read that article – drop me a message request).
Role of Property Developers and Housing Shortage
In response to the growing housing demand, property investors have stepped up, acquiring dilapidated properties and repurposing them into habitable homes. This has provided a partial solution to the shortage of available housing, particularly for those who rely on rental properties provided by landlords and property developers.
Ethical Dimensions of Buy-to-Let Investments
The ethical considerations surrounding the Northampton buy-to-let market are complex and multifaceted. On the one hand, Northampton buy-to-let landlords have filled a void in the Northampton housing market, providing much-needed shelter to many Northampton tenants. On the other hand, concerns arise regarding exploitative practices by a handful of rogue landlords and the potential commodification of a basic human need – shelter.
The bottom line is, as the population of Northampton grows, there needs to be more properties being built for everyone to have a decent roof over their head. The rogue landlords of Northampton need to be put out of business. Finally, Northampton tenants should expect a more regulated rental market (which they have achieved over the last few years), with greater security for tenants, where they can rely on good decent Northampton landlords providing high standards for their safe and modernised home.
Addressing the Crisis and Moving Forward
To alleviate Northampton's housing crisis, a multifaceted approach is necessary. Fairer regulations for Northampton landlords, enhanced tenant protections, and incentivising property development could contribute to a more balanced housing market. Exploring innovative models from European countries, where renting is more prevalent, could provide insights into creating a system that ensures decent and affordable housing.
Northampton's housing market has undergone substantial changes over the years, with the rise of private renting and the proliferation of buy-to-let investments playing a pivotal role. The generational economic imbalance and ethical concerns associated with the Northampton buy-to-let market have sparked passionate debates about the responsibility of different generations and the moral implications of housing as an investment.
As Northampton continues to grapple with housing challenges, collaborative efforts between policymakers in local and central Government, developers, Northampton landlords, and tenants are essential to creating a housing landscape that is fair, ethical, and accessible to all.
So, my final question is to you, the reader of this article.
Only you can decide if buy-to-let is immoral, but let me ask this question first.
If these Northampton buy-to-let landlords had not taken up the slack and provided 25,195 extra homes in the last 40 years for people in the West Northamptonshire Council area, where would these Northampton tenants be living now?
During the height of council house building in the 1950s, UK local authorities were building, on average, around 147,000 council houses a year. In the last decade, UK local authorities have only averaged building around 1,400 council homes a year.
It would cost West Northamptonshire Council £3.199bn to build all those 25,195 buy-to-let homes today that local landlords have funded themselves (a figure that assumes the council build on land they own).
That building sum would take up 100% of our local authority's budget for the next eight to ten years.
All this conjures up many questions such as:
Is the buy-to-let practice immoral or in fact necessary?
Should, as recently voiced, landlords be restricted to one rental property each?
What would our housing landscape be like without rented accommodation?
Of the 33,000 West Northamptonshire households that are in private rented accommodation, how many of those have little or no option other than to rent, so where would they be if there was no private rented sector?
These are my thoughts; tell me yours!