The worldwide real estate market has on the whole performed relatively well since the economy collapsed back in 2008. There have been specific hotspots such as the London market, parts of the US and Australia for example. One thing is becoming clear, those looking to climb onto the property ladder for the first time are struggling to find the deposit required let alone cover the cost of a mortgage. This is creating something of a vicious circle as more and more people are forced to rent which pushes property prices higher and higher, further away from the affordability line in the sand.
Is it time for governments around the world to take control of the real estate rental market and limit rental charges?
When is a free market not a free market?
The whole crux of the rental market issue comes down to the fact that the vast majority of successful real estate markets operate in what is known as a “free-market”. This means there is minimal regulation and to all intents and purposes the market is left to its own devices. In simple terms, market prices are driven by the supply/demand ratio which can be influenced by the authorities but on the whole is more influenced by investors. It is impossible to champion the cause of free-market principles while introducing restrictions which will impact investment returns.
How can we create more affordable housing?
If you look at many countries around the world you will see a reduction in welfare spending on affordable properties. The vast majority of governments have sold off their stockpile of state funded housing in favour of direct rental payments to the private sector which has taken on the additional cost of building and servicing welfare properties. There is some movement in favour of new investment in affordable housing but when you bear in mind that many countries around the world are still running well behind the required “new build” numbers, can we really trust governments to deliver?
The simple fact is that when governments around the world required additional funding they were happy to jettison an array of welfare sponsored housing which was made available to those on low incomes. The cost of property purchasing and servicing was effectively transferred to the private sector which was given the right to charge market rental rates in exchange. However, now that many of the general public are up in arms at the fact that first-time buyers are being priced out of many property markets, governments seem to be changing their minds again?
The fact remains that there was ample welfare housing across the vast majority of the Western world. These properties were used to house those on lower incomes and indeed were a relatively cheap way for the state to support those struggling from a financial standpoint. However, when budgets began to tighten, liabilities began to grow and additional spending was required to keep momentum going, many governments simply jettisoned their portfolio of state run properties.
There was a significant transfer of cost to the private sector in exchange for “market rental rates” but now investors are pushing prices higher and higher, more people are being forced to rent. This vicious circle is set to continue for many years to come and any government criticisms should be taken with a pinch of salt. The fact remains that governments around the world created this situation, jettisoning their welfare state property portfolios, in favour of a short term cash inflow. How they must regret that move?