Low Demand in Housing Private Market - Assignment Example

Name: Institution: Low Demand in Housing Private Market Tutor: Course : Date: Table of Contents Table of Contents 2 Low Demand in Housing Private Market 3 Introduction 3 Causes of low demand in housing 3 Decline in private rented housing 7 The advancement in social housing to high standard and at reasonable rents for the privileged working class was also another cause for the decline. The private sector could not compete with the social housing and this made many of them to have the option of selling their houses. Initially the high standard housing could only be found in the private sector hence attracting the well paid workers, but the social housing could also provide the high standard thus attracted many of the tenants. As the standards increased in the social housing, the poorer households in private rental housing made the situation worse. The private house owners were encouraged to sell their property as the poor tenants can no longer afford the rent. The ownership of private housing has become comparatively poor investments as people look elsewhere to invest (Rhoden & Balchin, 2002). 10 Obstacles in curbing low demand in the private sector 10 Policies to tackle low demand 11 Role of Registered Social Landlords 11 Renewal areas and empty property strategies 12 Role of the private rented sector 12 Compulsory purchase and clearance 13 Conclusion 14 Bibliography 15 Low Demand in Housing Private Market Introduction Low demand in the housing private market is the inability of constructed houses being able to attract anyone willing to dwell in them. In the worst form the houses are abandoned completely as people or tenant look for accommodation or resident elsewhere. In the housing policy of Britain the matter has been viewed as a challenge that has been created by the council housing, where important estates, blocks or areas have come to be labeled as ‘difficult-to-let’. This challenge was first noticed in 1974 and highlighted as a major problem in the housing sector. The problem was characterized by empty and abandoned buildings, high turnover and abnormal sales and low house prices (Cole& Nevin, 2004). Causes of low demand in housing According to Leather et al. (2007), the fundamental factor that is a direct result of low demand is the poor perception or tainted reputation of areas, antisocial behavior and crime. Poor quality environment and conditions, design and type of estate or housing are of middle level significance. Equal observation is applicable to general surplus in housing that it has been pointed out in almost half of cases at neighborhood level in every tenure sector. Leather et al (2007) adds that there exist a big level of similarity between factors causing low demand in housing that are considered commonly important in both the social and private sector. Nevertheless, some differences are striking. Dwelling places that are unpopular are more associated commonly with the local authority sector, while on the other hand poor condition is more witnessed when it comes the private sector. It is conspicuous that factors such as quality or availability of services locally and inaccessible location are only rightly not pointed out to be major factors resulting to low demand. Concerning local services this is apparently conflicting with the view of the Social Exclusion Unit which emphasized on the fact that many of the neighborhoods considered poorest experience run-down services both public and private. Whereas local schools quality being poor is a usual factor pointed out as encouraging out-migration of the inner cities, it has not been taken by practitioners as specifically important as the reason of low demand and unpopularity of neighbourhood as observed by some people. Explanatory variables that have been put forward to explain the cause of low demand in housing in the private sector have been broadly categorized as demographic factors, employment factors, poverty/income, area (un)attractiveness and stock supply characteristic. The unattractiveness of the area is very crucial factor in the social sector. Crime problems and dissatisfaction have outstanding effect across the sectors. Fear of crime and anti-social behavior are the strong factors that are forcing people to abandon areas that are unpopular (Rhoden & Balchin, 2002). A number of commentators have put forward explanations for the emergence of low-demand and for the unpopularity of neighbourhoods. The causal factors that have been put forward have been broadly categorized into three: first broader sub-regional and regional effects of demographic trends, especially migration, that are usually viewed as associated to employment changes and economic restructuring. Secondly, there is the factor that is brought by changes in behavior and preferences in the would-be consumers of the private housing and social housing. This has been occasioned by the declining popularity of private housing and instability and greater turnover in the tenant population. Finally the micro-social processes at the neighborhood level that lead to specific areas being stigmatized by reputations for crime, poverty and other factors resulting into processes of collective deterioration of conditions which may in the long run lead to total abandonment (Allen, 2008). Reduction in traditional male blue-collar employment and economic restructuring in the cities in the north and previous mining and industrial areas have been pointed out as the main factors causing a decline in demand for private rental housing. The effect of these factors which have been there for long might have been lagged. The effects were worsened in the early 1990 by the unanticipated impact of the recession in the economy of the south at the time. According to Birchall (2002) the broad switching of preference towards owner occupation compounded with affordable and accessible supply, of new housing as well as secondhand, in the lower-priced midland and northern regions. This made more people to decide to own a house than just renting it because they could now easily afford them. Access to home ownership is encouraged not only not solely with low prices but also with attractive mortgage deals and low rates of interest. The switch is also motivated the type of house preferences inclined towards suburban types of houses with gardens, and opposed to smaller housing, flats and possibly terraced housing; and a generous supply of new housing has motivated the movement out of the established areas (Matthews, 2000). Shifting preference has also been occasioned by the size of the accommodation. Despite the application of local allocation norms and demographic trends, there to exist more social sector demand for bigger accommodation and an apparent excess supply of small units. According to social housing agency point of view, there is change in the mix of types of household. There is obvious low demand from the traditional client groups. It is estimated that about three percent of private sector housing could be categorically referred to us ‘low-demand’. The fall in private sector may be as a result of a mix between general housing market revival and the increased influence of the deregulated private rented sector. Sales turnover in the in the private rented sector shows a general pattern of sales rates that are high in periods and areas that of high demand. The proportion of private sector demand as a percent of cumulative stock, and the spread geographically are curtailed as compared to low demand in the social rented sector (Birchall, 2002). Decline in private rented housing The decline in private rented housing has been attributed to three aspects namely: the sale of private rental housing into owner-occupation, the demolition of pre-1919 rental housing and the failure to build new housing for the private rental. These factors have been pointed out as the major ones causing the decline in private rental housing. Karn et al (1985) argues that rent control in the private sector is among the real factors that are attributed to the decline of private rental housing. With the introduction of rent control in the year 1915 in addition to security of tenure there was a major strike in Glasgow over rent that was occasioned by this act. Many people felt aggrieved with the introduction of rent control since it denied even the owner the full benefit of his property. Private house owners saw it as an aggression into their independent situation and they wanted to regain control of their property. The enacting of ceilings and low price levels also left some of the tenants aggrieved where they could not afford the amount demanded from them. Rent control on the private sector had an impact on the size of private rental housing and on the stock conditions. Many of the investors who had opted to venture into private rental housing were discouraged and some who had already invested started to pull out slowly by slowed and in the end very few individuals were left in the private sector housing due to the barriers they saw in the sector (Headey, 1988). Tax relief for owner occupation and associated growth of demand for it, and house prices, which has further fuelled demand for it. In the long run many people want to be owner of homes as opposed to going for rental housing. Malpass (2009) notes that the prices of the houses had gone done making many people to want them. This has consequently increased the demand for the houses. Affordability had a direct impact in increasing the demand for the houses which were now bought and converted into owners’ occupation. This event resulted into the increase in the gab between value of tenanted property and property with vacant possession that could be sold into owner occupation. There was a tendency to convert the property into owner occupation when they obtained a vacant possession of it particularly when the tenancy ended. Many of the tenants turned into buyers when their term of tenancy came to an end. This is because of the affordability of the houses (Malpass, 2009). Nevin (2001) argues that the increased incentives encouraged the better off tenants to be converted into owner occupation. In the long run it is only the poorer tenants who were left and they could not afford higher rents on a new contract let, when the owners increased the rent. This made the house owners to opt to sell more of their property into owner occupation as opposed to renting them out to poor tenant who could hardly afford the required rent hence making the owner unable to maintain even the houses themselves. The private house owners saw it best to sell the house than to rent and consequently there was a decline in private rental housing as many people targeted their property for selling and not renting. According to Cole and Nevin (2004), the ever increasing gap in price between tenanted property and that with vacant possession directly led to speculation. Subsequently it is easier to purchase rented property as a tenant because the value of the property is low. Other house owners have resolved to the mistreatment and general harassment of tenants to make them vacate the house in order for them to sell to owner occupation. Further more there is an increase or an upsurge in security of private rental housing in spite of security of tenure. One will want to leave at a place where he is secure and he is assured that the property will not be sold while he is still a resident. In many occasion the fear has crept in due to insecurity making many to opt for owner occupation. With the advancement in Rachmanism or owner occupation meant that the government could no longer support expansion of the private rental housing sector. The only exception to this was grants for improvement which also encouraged owner occupation. The advancement in social housing to high standard and at reasonable rents for the privileged working class was also another cause for the decline. The private sector could not compete with the social housing and this made many of them to have the option of selling their houses. Initially the high standard housing could only be found in the private sector hence attracting the well paid workers, but the social housing could also provide the high standard thus attracted many of the tenants. As the standards increased in the social housing, the poorer households in private rental housing made the situation worse. The private house owners were encouraged to sell their property as the poor tenants can no longer afford the rent. The ownership of private housing has become comparatively poor investments as people look elsewhere to invest (Rhoden & Balchin, 2002). Obstacles in curbing low demand in the private sector The existing government policy seems to inadequately address the problems in private sector although they less a feature and less adequately addressed. The reasons for the prevailing situation could comprise of: lack of managerial control and direct policy over private sector housing; the perception that private assets are more at risk as compared to public sector assets; lower political clout and salience of the private housing sector areas that are poorest; as a result of the afore mentioned, directed programmes of public spending to this sector are very small in size and prone to shift in time; the conception held by other that the market will in the long run sort it self out; and the unavoidable cost or complexity of dealing with ownership of individual property that is diffuse. Moreover low demand areas in the private sector are mainly located in former and urban mining or industrial districts of midlands and the north. Most of the housing experiencing this largely was in poor physical condition. The tenure is usually mixed with large percentage comprising of owner occupation, some RLS (Registered Social Landlords) ownership and some private renting, all these are spread out in a total fashion that is pepper-potted. There is reasonable past investment necessitated by improvement grants, environmental works and group repair, but the prevailing conditions presently are still uneven and the level of some work done previously is suspect or generally low. The residents are majorly poor with, in particular areas, a huge presence of minority groups and the black. Neighbourhood challenges of disorder, crime, overall poor environment and drugs are the order of the day. First time household buyers avoid these areas and go for starter-homes that are new built and suburban semis that will always come with mortgage packages that are very attractive. Policies to tackle low demand Role of Registered Social Landlords Majority of private sector in significantly low demand areas are found in localities of low demand areas across all tenures. Making the RLSs to acquire the stock and consequently let to social tenants that are new is not a solution in itself. RSLs in these specific areas would want to reduce their stock holdings of this type. Where RLSs could have a supported role, as observed by the Housing Corporation, is a clearance that is grant-aided with the aim of doing away with the surplus in the private housing thus creating demand (Cole & Flint, 2007). Renewal areas and empty property strategies Renewal areas were the tool policy that was used in the 1990s to address such areas, taking over from Housing Action Areas (HAAs) and General Improvement Areas (GIAs). Generally few have been pronounced and their break through has been patchy, relatively owing to the curtailing influence of the statutory grant regime for unfitness over the period of 1990-1995 that resulted into prevention of local authorities from operating many areas targeted with grants. The central government has brought in greater flexibility as far as declaration criteria is concerned. The emphasis on fitness has been reduced. The changes are to be embraced since majority of the housing in low-demand areas are not unfit technically, although they are labeled to be obsolete, unwanted and of poor quality. Strategies of empty property are another application that is imbedded in the prevailing policy. Vacant property both non-housing and housing have been brought back in use in the event making the local environment better and on the other hand increasing the supply. In the worst-affected areas of low demand the policy does not go well. In many circumstances there will be shortage of housing and what is needed in increase in supply. Role of the private rented sector The private rented sector has not been regulated but partly reregulated by the back door of the eligible rents of HB. There is also a trend towards voluntary standard-setting, or regulation in relation to occupation that is multiple and likely wider issues concerning private tenancy. Fundamentally in areas with low demand there is an alternative between putting in place regulatory screws in the sector and likely removing it out of existence, or putting up with wider implications for other tenures. The rent officers would be instructed to set workable rents at levels which related to the market capital values of residents, especially where market rental evidence was unreliable and thin. Fair rents were to be fixed by rent officer. The primary goal was to obtain a balance between the interest of the tenants and the landlords. It was aimed at giving the tenants security of tenure while permitting the landlords to implement regular rent increases. Compulsory purchase and clearance Owing to the limitations of the tools in the encounter of generic low demand, we come head to head with the need to address the query of how some of this unwanted and obsolete housing stock is to be not commissioned. The level of clearance of housing of private sector has been lowest for some years. This portrays the policy of presumption which has been in place since the commencing of mid 1970s, accompanied with a combination of political, practical, procedural and financial difficulties which confront attempts at clearance at private sector at the local level, even when they are tried (Nevin, 2001). In 1986 assured tenancies were extended to refurbished property as well as newly built. With assured tenancy the aim was to deal with the low demand. Besides restriction concerning building societies owning houses and land was lifted hitherto they were only allowed to act through unregistered housing association. All these efforts have tried to deal with the critical issue of low demand in both private rental housing and social rental housing (Cole & Flint, 2007). Conclusion Some of the policies that have been put forward to deal with the problem of low demand have not succeed owing to the reception that it has received from the people being targeted which include landlords, investors and the would be tenants. Generally there is ever dynamism in every economic sector and the private housing sector is not an exception. The trend in low demand there fore could be attributed to these turbulent economic times. Private rental housing is still important to the people in the United Kingdom. Bibliography Allen, C., 2008, Housing market Renewal and Social Class, Routledge, London, Cole, I. & Nevin, B., 2004, The Road to Renewal: The Early Development of the Housing Market Renewal Programme, Publishing Services, YorkYork Cole, I. & Flint, J., 2007, Demolition, Relocation and Affordable Rehousing, Coventry, CIH Karn, V., Kemeny, J. and Williams, P., 1985, Home Ownership in the Inner City: Salvatiojn or despair? Aldershot, Gower Leather, P. et al. 2007, National Evaluation of the HMR Pathfinder Programme, DCLG, London. Nevin, B. et al., 2001, Changing Housing Markets and Urban Regeneration in the M62 Corridor. Birmingham, CURS. Headey, W., 1988, Housing policy in the developed economy: the United Kingdom, Sweden and the United States. New York, Taylor & Francis. Rhoden, M. & Balchin, P.N., 2002, Housing policy: an introduction, Routledge, London. Birchall, J. 2002, Housing Policy in the 1990, Routledge, London, Matthews, M. H., 2000, The changing geography of the United Kingdom, Routledge, London, Malpass, P., 2009, Housing, markets and policy, Taylor & Francis, New York. Read More