What’s changed through two decades of housing market dynamics?

Twenty-first century housing markets have had their ups and downs, but prices continue to rise. It’s win-win for the property-rich. Yet as corporate landlords and intermediaries open the door to institutional investors, it’s unclear where the route is to a fairer housing future.

Twenty years ago, the UK – along with Australia and the United States – was enjoying a housing boom of remarkable magnitude and duration.

First, this was associated with the expansion of mortgaged owner-occupation, which provided the leverage needed to turn housing into the largest and most widely held asset of all – the ‘people’s wealth’.

Second, it generated a round of ‘wealth effects’, as buoyant house prices boosted consumer confidence enough to bail out whole economies across the dot.com crash of 2000-02.

Finally, a flurry of mortgage product innovation prompted an equity borrowing bonanza, enlarging housing’s ‘collateral effects’ as families with limited savings and little other wealth (except, perhaps, illiquid pensions) increased their loans against existing homes to meet pressing spending needs.

All this ground to a halt during the global financial crisis of 2007-09, when boom turned to bust, taking much of the economy with it. Yet as governments vied to restore business (more or less) as usual, house prices once again wound up.

By then, however, owner-occupation was on the decline (Smith et al, 2022). At the same time, tight credit constraints forced less affluent households to use savings to service debt to keep a foot on the housing ladder.

Nevertheless, in June 2024, after a smaller-than-anticipated post-pandemic slump, The Economist asked, rhetorically: ‘Is a fresh housing boom underway?’ ‘Yes’ came the answer just four months later: there is a ‘house-price supercycle’, which ‘could keep rising for years’.

This may be music to the ears of those already bought into owner-occupation, and perhaps to policy-makers keen to restore confidence in an ailing sector. But that position overlooks the enormity of another recent shift: a wholesale ‘recalibration’ of private renting (Kemp, 2023).

The hot news that ‘unless something drastic changes, the world’s biggest asset class is about to get bigger still’ reached the ears of an expanding class of institutional landlords and investors some time ago.

As a result, over a decade or more, the leading edge of the private rental sector has shifted from amateur property investors to large corporate landlords. The latter are backed by private equity, listed property companies, real estate investment trusts and a glut of funds in search of safe returns.

To be sure, small landlords remain the norm – the enduring legacy of a millennial housing boom when house price appreciation outstripped stagnating incomes, the switch to defined-contribution pension scheme left retirees with 'pots of gold' to invest, and owner-occupiers had incentives to acquire second and subsequent properties.

Motivations varied, but many were amateurs, drawn mainly to capital gain. Rental returns were about covering the cost of borrowing: an exercise in ‘let-to-buy’, which, arguably, produced a rent-gap in the run-up to the global financial crisis.

Subsequently, that gap widened in the United States as a wave of financial crisis-generated foreclosures catalysed a transfer of value ‘from Main Street to Wall Street’ (Christophers, 2021). Soon, this uptick in corporate investment into residential property became a global trend.

Reflecting differences in regulation and taxation, in some countries (notably the United States), large institutions initially bought into the second-hand market. In others (such as the UK), they focused on new-build, and elsewhere (Australia and some European capitals), corporate intermediaries have been transforming the home-share market.

Slowly but steadily, variously engaging in mass buy-to-let, spearheading build-to-rent, and using property technology (‘proptech’) and platform capitalism to edge into what used to be the market for single family homes, these institutional investors have been acquiring, and reaping value from, the rentable housing stock (Rogers et al, 2024).

On the one hand – with so little public investment in housing since the 1980s – an injection of corporate finance seems just the thing to bridge a growing gap between housing need and availability. It is hardly surprising that a new flow of funds proved attractive to policy-makers and cash-strapped local governments. Who could complain about professionalising property management or delivering efficient housing solutions to tenants who can pay?

Researchers, on the other hand, are less sanguine. While these shifts may increase the number of residential units and exploit under-used times and spaces within them, recent work has highlighted a number of concerns.

For example, far from new technologies being used to pass on scale economies and efficiency gains to tenants, researchers report the withdrawal of services supposedly priced into rents, repairs masquerading as (rent-raising) improvements, the introduction of unanticipated charges, rising housing outlays and low tolerance for affordability stress.

Then there is the impact of Airbnb and cognate platforms, which are effectively 'hotelifying' whole swathes of housing stock, favouring expensive short lets over rent-regulated secure tenancies, and crowding out whole-home occupiers.

Such shifts have unleashed a wave of public protests, fuelling speculation that the private rental sector, once the disorganised province of amateur landlords, has become a bridgehead of ‘rentier capitalism’, as corporate interests appropriate and consolidate the ownership and intermediation of residential property.

While tapping into massive investor appetite for exposure to housing assets, this ‘institutional turn’ – far from addressing the bulk of unmet housing need – could even be extracting value (for shareholders and other ventures) from an already under-resourced sector.

Twenty years ago, key debates turned on whether a long-running housing boom – insulating owner-occupiers, at least, from a turn to economic inequality – might have reached a peak.

Today, as prices once again ramp up, the very future of the people’s wealth is at stake. Who will reap the benefits of a house-price supercycle? Will governments tax and regulate boldly enough to ensure that a fair share of residential property remains in the hands and under the democratic control of home-occupying publics? And if not, what scope will there be to resolve the housing emergency?