“Generation Rent” – are there lessons from Germany?

Berlin Housing (Photograph: James Carson)

Berlin Housing (Photograph: James Carson)

By James Carson

Could a lower level of home ownership in the UK become the new normal? That’s one of the questions arising from a recent Halifax report  that examined perceptions and changes in the first-time buyer market.  Although there has been an increase in the number of first-time buyers in the past five years, the report identified a growing number of people aged 20-45 who do not believe they will ever own their own home.

The authors concluded that if this trend continues the UK could be moving closer to the German housing model, where renting is the norm.

While about 60% of Britons live in owner-occupied accommodation, barely half of Germans own their own home (the lowest proportion in Europe). A number of factors explain the enduring preference for renting in Germany :

  • A good supply of high quality rental accommodation from housing associations and municipal authorities;
  • Rents are transparent and tightly controlled, and tenants enjoy substantial rights and protection from bad landlords;
  • Lending requirements have been traditionally more stringent than in the UK, and there is less of a borrowing culture in Germany;
  • German house prices have shown lower levels of growth and volatility.

In recent years, there have been some signs of a shift towards home ownership in the German market, particularly in Berlin. But, having looked on with disquiet at the fallout from property crashes in the rest of Europe, many Germans remain suspicious of booming housing markets. In Germany, renting is still seen as a perfectly respectable alternative to home ownership.

Could that happen here? Prohibitive deposits, high property prices and low incomes are preventing many people getting a foot on the property ladder. Faced with a shrinking social housing market, they are increasingly turning to the private rented sector (PRS), which now forms the second largest form of tenure in England (18% of the total households).

The Halifax report suggests that the German model is not unattractive, but also warned that a shift away from home ownership means problems in the UK’s PRS need to be addressed.

These issues were detailed in another recent report, from the Just Fair Consortium. Among its findings:

  •  33% of PRS dwellings do not meet basic standards of health, safety and habitability;
  • Tenants are afraid to complain about the poor quality of properties for fear of retaliatory evictions or arbitrary rent rises;
  • The cost of PRS housing is almost double that of social housing, and private tenants are increasingly unable to meet the costs.

The report’s authors noted that, while the rise of the PRS has been characterised by the government as a positive development, this has not been the experience for everyone:

“The UK government has increasingly presented the PRS’s expansion as based on lifestyle choice, and as a form of tenure suited to greater labour market mobility and flexibility. While this may be the case for some economically empowered renters, the overall context of private rentals suggests that the sector provides housing for a number of households, particularly families, for whom a private rental home is a source of anxiety over tenure security, cost, habitability, and quality, rather than a sought-after choice.”

The problems associated with the PRS in the UK may be contributing to a reluctance to rent. But if there were improvements to security of tenure, quality and affordability, the PRS might appear a more attractive option. Danny Dorling, professor of human geography at Oxford University, recently contrasted the UK’s rented sector with the situation in Germany:

“In Germany tenants cannot be evicted on a whim. Often landlords have to bribe them out if they want control of the property back before the agreed date. Property is of good quality, well soundproofed, spacious and well insulated. Pension companies often hold it, so you know where your rent is going: it is paying for your parents’ generation’s old age.”

If Generation Rent is here to stay, this has implications for the private property market, for the social and private housing sectors, for planning and economic development, to say nothing of the social impact. The UK is unlikely to return to mass private renting any time soon, but if current trends continue, perhaps there are lessons to be learned from the German model.

The Idox Information Service can give you access to a wealth of further information on housing; to find out more on how to become a member, contact us.

Further reading*

Rent increase (Britain’s housing tenure landscape)

The future of London’s private rented sector

Resilient? (social housing in Scotland)

Ownership status, symbolic traits, and housing association attractiveness: evidence from the German residential market

Making a rental property home

*Some resources may only be available to members of the Idox Information Service

Des res or deposit box? The impact of foreign investors on UK house prices

by James Carson

Foreign investment in UK property is an issue that’s been attracting increased media coverage, mainly because of claims that wealthy overseas investors are driving up property prices and locking millions of UK citizens out of the housing market.

Properties in central London are attracting the lion’s share of this foreign investment, primarily from Asia, Russia and the Middle East. Last year, the Civitas think tank reported that 85% of prime London property purchases in 2012 were made with overseas money.

The Civitas report highlighted concerns that, as well as driving up prices for domestic buyers, overseas investments might be distorting house-building priorities by persuading developers to focus on wealthier buyers, rather than affordable housing. Civitas argued that the UK should follow Australia’s lead in preventing non-residents from investing in residential property unless their investment adds to the housing stock.

Moves towards constraining inward investment have set alarm bells ringing for those who believe that it provides economic and social benefits to the UK, and delivers housing that would otherwise not be built. A report from London First in 2013 made the case for continued foreign investment:

“London is a – perhaps the – international business city. Its economic success, which delivers jobs and prosperity for Londoners and the country as a whole, has been built on international trade, in past centuries primarily in goods and now principally in a range of services. If London is to continue to thrive the city must be open to housing those who come here to do business.”

While London continues to attract the bulk of foreign investment, there are signs that overseas buyers may be starting to look beyond the UK capital. One estate agent told The Daily Telegraph that international investment in Edinburgh’s residential market was increasing “at a phenomenal rate”. The article went on to highlight the city’s pulling power for overseas investors:

“It’s largely down to the schools, which are the main attraction. Russian buyers are sending their children to Merchiston Castle School, George Watson’s College and Edinburgh Academy. We have also seen an increase in Chinese buyers, who are attracted to Edinburgh for the freehold properties.”

Some observers have sensed an undercurrent of xenophobia among the opponents of overseas property investment. Writing in The Guardian last month, Dave Hill observed:

There’s something discordant about the stress on the foreignness of those “rich foreign investors”. Would rich investors in London be alright if they weren’t foreign? Are foreign investors alright if they live in London, as many do? Are we not a “world city”, suddenly?

For others, such as Peter Wynne Rees, the former planning officer for the City of London Corporation, the real problem is an unresponsive planning regime:

“A residential development in central London is now likely to make four to six times more profit than an office scheme. Without planning control, much-needed offices have given way to piles of “safe-deposit boxes” rising across the capital. These towers, many of dubious architectural quality, are sold off-plan to the world’s “uber-rich”, as a repository for their spare and suspect capital.”

Rees was one of the contributors when the Greater London Assembly’s Housing Committee met to consider the issue of overseas inward investment in March.

The issue is likely to maintain its high profile up to and beyond the general election. Ed Balls, the shadow chancellor, has suggested that overseas owners with second homes in the UK could be forced to pay a larger contribution than people living in their only home. The Conservative Party rejects this approach, but in his 2014 Budget chancellor George Osborne extended stamp duty to include more wealthy foreigners who buy homes in Britain to avoid tax, and in December he increased stamp duty on house sales worth more than £1.5m. It appears that this, along with uncertainty over the election outcome, has begun to affect the market.

Underlying all of this is the shortage of affordable housing. In London, 809,000 new homes are needed by 2021 to meet existing and new demand. But while all sides agree that the best way to address house prices without damaging foreign investment is to build more homes, there is no consensus on how that can be achieved.


The Idox Information Service can give you access to a wealth of further information on planning and property development, to find out more on how to become a member, contact us.

Further reading

Some resources may only be available to members of the Idox Information Service.

48-hour flash sale (overseas exhibitions promoting UK properties)

Storms gather over London residential (foreign investment in London property)

A roadmap for the regions (property forecast for 2015)

Spotlight: the world in London – dynamics of a global city

Honey trapped (Russian investment in Britain)