First-time buyers caught in rising rent trap as property market faces meltdown

It’s no secret there’s something wrong with the housing market. However, with the National Housing Federation today warning that a combination of crippling rents and lack of affordable housing is creating a vicious circle, a complete property meltdown could be on the horizon.

Most people will know someone who has struggled, or is struggling, to get their foot on the ladder. In the past, it was a transition which was within the grasp of most people. We’re not talking eons ago either, 30 or 40 years at the most. Back then, when the average three-bed semi cost about £40,000, a young couple could expect to pay a mortgage on a single salary.

But then came the housing boom. Prices rocketed, much to the delight of those lucky enough to own their own home, but when the next generation tried to step on the bottom rung of the fabled ladder, it was already way above their heads.

Last year, the average house price in Yorkshire and the Humber was £155,303 – almost eight times the average wage.

As a result, more people have turned to the private rental market and according to new statistics out today, rents are soaring to unsustainable levels.

Robert Warm, lead manager for Yorkshire and Humber for the National Housing Federation, the trade body for social landlords, said private rents had already increased by 40 per cent in the last two years and are expected to increase a further 64 per cent over the next decade.

He said: “Fundamentally, this is about supply and demand. Not enough houses are being built. We’ve known this for a long time, but the knock-on effect, which we are just starting to see now, is that people turned to the private rental market and now rents are increasing to levels which people can barely afford.

“There’s a whole generation of people who are going to be too wealthy to go into social housing, too poor to buy their own houses and so the only option really left to them will be the private rented sector. These are the squeezed middle.”

In Leeds, the average cost of renting for a year is almost 50 per cent of the average salary, a picture replicated across the county.

“When I first came to Leeds, you could buy a two-bed house for £40,000,” says Robert. “If I was moving here now having just left university with £27,000 worth of debts with a partner who probably has the same and house prices around £140,000, you think actually, how would you ever make that add up?”

Many can’t. Andrew Kitchen and wife Amy live in a rented two-bed semi-detached house in Garforth, near Leeds. They pay £525 a month on rent and about another £225 a month on household bills.

They also run a car, which consumes about £80 a month in petrol, all of which means they have precious little left to save for a deposit to buy a house of their own.

Their position is typical of a lot of 30-somethings, who are well educated, have decent jobs and are aspirational.

With the average house 
price now standing at £160,000, unless you are able to take advantage of one of the 
limited number of Government-backed schemes, such as 
NewBuy, deposits are upwards of £15,000.

Andrew, 28, who works as a corporate service assistant for Leeds Federated Housing Association, says: “It’s near enough impossible trying to save up for a deposit. The irony is that what we pay in rent each month is probably more than what we would pay if we had a mortgage. I have friends who have just bought a house and they pay not much more than we do in rent.”

He adds: “Rents are too high, we’ve been in our house about four months but we’ve had to do a lot of work on the place, it was run down and when you want things fixing, like a leaking tap, it can take a long time for that to happen.

“The current situation means landlords can take advantage of tenants in terms of increasing rents. I think a lot of people will turn to short-term loans, I see a lot more adverts on TV now for that kind of service and some people will be tempted to do it and some will end up more in debt as a result.”

Wife Amy, also 28, who works 25 hours a week as a chef, said: “You can’t save while you rent, the amount of deposit you need for a house is sky high. Unless we come into some money, I can’t see how we will get on the property ladder.”

Robert says the solution to the crisis lays simply in building more houses.

“Over the last year 27,000 new families were formed in Yorkshire and the Humber and yet only 10,000 homes were built. This shortfall has gone on for a number of years. New affordable homes, which is what our members build, in Leeds last year was 550 – it’s a drop in the ocean. It’s not even touching the sides.”

According to the National Housing Federation, only 9,480 new homes were built in the region in 2011-12, providing homes for just 36 per cent of the 27,000 people who need one. It wants the Government to do more to encourage the building of new homes, especially on so-called brownfield sites, which, unlike unspoilt green belt land, have been built on previously.

“We also need to change 
public opinion, so we need to say to people if they care about the community they live in, 
there needs to be homes 
people can afford to live in,” 
says Robert. “Many people object to housing developments, but if you ask them where they would like their children or grandchildren to live, it’s probably where they live now.

“People are often scared of the unknown, so they often oppose planning applications for new houses – will it change the 
school? Will it clog the roads up? But those are the same people who when their children are older will ask why can’t they get on the housing ladder.

“The only thing that will stop house prices going up long term is to increase the number of houses there are. This country has always built its way out of recessions, house building has always been the bit that kick-starts the rest of the economy because it creates jobs. People see the value of investing in housing, so what we would say to the Government is it’s money well spent, those houses are still going to be there in the future.”

Robert concedes the Government has set up a £10bn loan guarantee fund for developers, including those building social housing but 
adds that it did not allow them 
to plan beyond 2015. His argument is that without certainty of continued financial support new homes will simply be too risky an option for any developer.

“The council owns land, as does the NHS, that land is not coming forward,” says Robert. “Seacroft Hospital is a good example. We estimate we could build 783 homes on there. We need to have security to know funding is there to support the development of housing. But we also need the mortgage market to change so people can borrow more easily. It comes down to where housing is in the political priorities of Government and it needs to be right at the top.”

Councillor Peter Gruen, Leeds City Council executive board member for neighbourhoods, planning and support services says: “Clearly there are not enough affordable houses being built to meet demand in Leeds. Significant cuts in the Government’s housing programme have not helped, although it’s the fundamental problem of lack of access to mortgages which is preventing house building.

“We’ve delivered around 
1,500 affordable homes in the 
last three years, often using our land assets to make schemes work. We’ve also committed £9m over the next three years to build new council houses, £1.5m to tackle empty property and pledged any right-to-buy receipts we receive to fund housing associations.

“This action demonstrates the council’s total commitment to tackling this issue. The most shocking thing of all is that the first-time house buyer, on average, is now 38. In my generation, we were getting 
our foot on the ladder in our 
early 20s.”

Priced out of property

The average price of a house in Leeds is now £166,035 – average income is £21,091.

The average house price in Harrogate is now £269,392 – average income is £20,914.

Since 2001, house prices in Yorkshire and the Humber have risen by 110 per cent.

Only 9,840 new homes were built in the region in 2011-12 – a third of what is needed.

The average house price in England is predicted to rise to £292,060 by 2018 and to £175,500 in Yorkshire and the Humber.

During the same period, private sector rents are expected to rise from their present level of £181 a week to £245.