1. End of an Era? Searching for a new ‘normal’ in the housing market Peter Williams, Director, CCHPR, Cambridge

2. My presentation Build on the previous presentations –the economy and regulation Together they paint a picture of constraint and caution. My presentation – –The changing housing market –The underlying drivers of change –Unpacking change and its consequences –Projections of the future –Implications –Conclusions

3. The Changing Housing Market Change predates the financial crisis Fall in mortgages for house purchase from 2002 – 1.4m down to 0.5m in 2011 and home ownership (numbers peaked in England in 2005 at 14.8m, now 14.5m; in percentage terms 2003, 71% to 66% now) Masked by the rise in BTL but it has continued Don’t forget – 50.7 % of households were owners in 1971 (E&W) when there were also 467 Building Societies! 14% of GB HO stock from RTB – without it much lower

4. The underlying drivers Rising wages, low interest rates, plentiful and easier credit and undersupply of homes Favourable tax regime and mixed performance by other assets Supported rising HPI and sustained confidence/demand Going forward - wage restraint, rising interest rates and tighter credit supply/higher cost But continued undersupply and still stretched affordability Pent up demand of over 1.4 million would be buyers Could go in either direction in medium to long term

5. Unpacking change A few graphs But the story is as follows; –Need to distinguish outright from mortgaged home ownership –two different trajectories –The feed through from RTB sales to home ownership – esp outright –The decline of council housing and the rise of private renting –The differences between parts of England –Change has differential impacts - by household type and income –Going forward to 2025 and depending upon the economic trajectory we see further development of the shifts

6. Housing Tenure in England 1993/94 to 2009/10

7. Housing Tenure in London 1993/94 to 2009/10

8. Mortgaged owners by age group, England

9. Projecting forward to 2025 Projected forward using 3 different economic scenarios –weak, cautious and robust economic growth Four variables –mortgage interest rates, LTVs to FTBs, real income growth and housing completions Clearly all turns on assumptions! A key one is what happens to the social housing sector – constant in number, 50,000 pa decline and demand into PRS and same decline but splitting demand into PRS and OO. Implicit assumption households will be allowed to form Preliminary results!

10. Projections Looked at a range of scenarios by household type, income, tenure, for England, RoE and London What is very evident is the potential scale of the transformation –we can debate how probable The key point is getting below the headlines – when looked at in detail –big impact –group expectations changed completely Owning to renting, social renting to private renting – loss of control 6 months AST –limited control, unregulated market –big impact upon families

11. Tenure change (%) England; weak economic recovery; social rented stock, constant.

12. Tenure change (%) England; cautious recovery; social rented stock, constant.

13. Tenure change (%): Families with dependent children, London: weak recovery; social rented stock, constant.

14. Projections Clearly much turns on the shape of the economic recovery but built into this work are views as to the supply of mortgage credit – likely to be constrained. More work to be done in this area. One concern we have is that MMR CBA understates this in general and does not segment to really understand impacts It will be important for FCA to track MMR and other regulatory interventions and the outcomes produced. If doubting of the Cambridge view, try Oxford!

15. Oxford Economics View 2011

16. Implications If there was a weak recovery and if all excess demand went to the PRS over 5 million households in England will be in the PRS in 2025 – a 66% increase from 2009/10. This has political, economic and social repercussions and question is it likely Government continuing to address home ownership but reality is limited appetite or funds –NewBuy may assist 100,000 buyers of new homes but major questions around that in terms of lender support and consumer appetite –Stamp duty and SMI changes adding to pressures –HPI stance but housing supply – New Homes Bonus impact modest –Politics over reality?

17. Implications Government has taken no view on tenure – outcome Should we be concerned if home ownership is 60% not 72%? Does it matter if more households rent – lenders on both sides of this? Certainly sits uncomfortably with expectations and rising tensions between younger and older households – as evidenced by ‘Jilted’. Impact on family formation, school achievement, business start ups and much more More households rent in retirement,

18. Implications Does pose question about an unregulated PRS – in all senses! Puts a premium on rent to buy type mechanisms? And how we reshape access to ownership – and opens up debt financing to competition? Places lenders at centre of an intense political battle? The industry needs to give further collective thought to this Certainly as next slide shows FTBs struggling!

20. Conclusions Sustained transformation has been underway Hard to see when you are in it –reflect in hindsight! Is it cyclical or structural –both? Does it matter – yes But England market still over priced – stressed affordability Real tensions going forward around prices, transactions and rates Look back to Sir Enoch Hill, Chairman of the Halifax –Building societies, he said ‘stand for home ownership and the pride of possession that springs from it’ So what are we going to do? What should government do? Finding a new sustainable normal – could be quite different than where we have been?