The Significance of Home Ownership - Essay Example

«The Significance of Home Ownership» Abstract Home ownership is the dominant form of the housing tenure in Britain, competing against private rented accommodation and social housing that is provided by housing associations and the local authority. Home ownership was notably encouraged by Margaret Thatcher through the notion of a 'property-owning democracy' and a right-to-buy policy. Despite the fact that it brings many advantages, home ownership is not devoid of disadvantages. This essay seeks to analyse the arguments for and against high levels of home ownership in society. The supported arguments have been highlighted and reasons for this support have been given. To start off, the significance of homeownership has been discussed. The significance of home ownership Today, with roughly 70 percent of Britain’s households being under occupation by the owner, it is easy to believe that home ownership is and always has been the rational and obvious form of housing tenure (Lowe, 2004, pp. 53-74). On the other hand, in 1914 home ownership in Britain stood at only 10 percent, rising to around 49 percent in 1971 and 69 percent in 2002 (Lowe, 2004, pp. 53-74)..A man of property in the nineteenth century did not own his own home. At the turn of the twentieth century, Britain was a nation of tenants. This applied to urban and rural areas and to the rich and the poor. Mass home ownership is an outcome of post-war history rather than a natural tenure. Furthermore, despite the fact that home ownership may be the trendiest form of housing tenure in Britain today, other countries see varying forms of housing tenure. The statistics of 1991 show Spain and Ireland had over 80 percent home ownership, the United Kingdom had 67 percent, the United States had 59 percent, Germany had 40 percent and Switzerland had only 29 percent home ownership (Doling, 1997, pp. 77-91). The discrepancy is clearly enormous, and by investigating the differences between the countries with the highest and lowest home ownership, arguments for and against high levels of home ownership in society can partly be illustrated. Homes are expensive to purchase, therefore most home owners take out a loan referred to a mortgage to buy the home. A small number of people have huge amounts of money that is readily available without the need for borrowing. Typically, a mortgage is not required if the buyer has another house to sell, for instance, if the seller and buyer are trading down. Except for in exceptional circumstances, first-time-buyers almost always require a mortgage. The percentage of the total price of the house of that mortgage is usually high. In 1979, the percentage advance for first-time-buyers had reached a long-standing low of 74 percent while between1982 an1985, it reached a high of 85 percent (Bramley, Munro & Pawson, 2004, pp. 82-103). Mortgage debt as a percentage of the total price of the house has risen for first-time-buyers. In 1980, mortgages funded only an average of 46 percent of purchase price. By 1984, the percentage borrowed had risen to 59 percent. The significance of this debt will be taken into account when assessing the arguments for and against high levels of home ownership in society. Despite the fact that there are many interrelated factors that have helped out in increasing the level of home ownership in the United Kingdom, the building society perhaps plays one of the most important roles. Before building societies, it was tremendously difficult for individuals to borrow enough money that was necessary to purchase a home. Sadly, in recent years, building societies have been demising, thereby losing their support and have been replaced by regular banks which have served the same purpose. Government policy strongly influences the increased property ownership. From 1979 to1990, Thatcher's government was notorious for advancing the concept of a 'property-owning democracy' (Angel, 2000, pp. 26-51). The government encouraged this concept through a liberal right-to-buy policy that was aimed at those people who were renting council accommodation. But despite the fact that perhaps the most pivotal and well known, Thatcher's government was not the only one to encourage home ownership. In 2001, Blair's New Labour government inaugurated the Starter Home Initiative to help key workers, above all the police, health workers and teachers, to purchase homes in region where high house prices were challenge retention and recruitment. Fascinatingly, in April 2004 this plan was followed by the Key Worker Living scheme that aimed at helping key workers in London, the East of England and the South East to buy a home, rent a home or upgrade to a family home at an affordable price. The political economy Before one can appreciate the arguments relating to property ownership, it is first important to have a complete understanding of the connections with the political economy. Possibly the greatest benefit of home ownership is it creates a property-owning democracy in which people have a direct investment in their country and the economy. In fact, the individuals literally own a portion of their country. Then again, this could in fact be a disadvantage instead of an advantage because it creates a fallacy of sustainability and security and dependency based on flawed Cornucopian politics and economics. Home ownership evens out people politically, hence getting rid of radical Bolshevik views and promoting a traditional short-term self-interested electorate which has possibly been blinded to long-term scientific and economic realities. To appreciate this argument, it is crucial to consider the sustainability of the economy on which home ownership is rooted. As has been discussed earlier, so as to buy properties nearly everyone requires a loan in form of a mortgage. Someday, the lender will be rewarded for that loan by being paid back with interest. In general, the size of a loan which an individual can secure is based upon salary and credit history. One can obtain a mortgage that is equal in value to about four times an individuals' salary. So, for instance, if a potential buyer makes a salary of 40000 pounds, then that person may be able to get a mortgage for at most 160000 ponds. Of late, however, it has been revealed that mortgage lenders often push buyers to lie about their salary so that they can secure a larger mortgage. The greatest problem with mortgages comes up when borrowers cannot pay back. A person with a mortgage is obviously very dependent upon their earnings, upon having a well paying job. In a nation where home ownership is the leading form of housing tenure, a high level of employment is vital. On the other hand, full employment is untenable due to an infiltration of markets and industries. Furthermore, technological unemployment has seen technology replacing jobs that were beforehand being performed by humans but an equivalent increase in the provision of new jobs elsewhere is missing. Despite the fact that the United Kingdom may currently be going through a low level of unemployment, this is a short-term element of the technological unemployment happening. For instance, many of the present new jobs are temporary jobs in which some people are working on quite simple tasks while others are employed in research and development or as programmers to find a means to find alternatives to those jobs or automate them. The rate of interest with which the mortgages are lent is usually either variable based upon a bank’s base rate or fixed over a term. In general, the lower the bank’s base rate is, the more inexpensive the repayments on a mortgage. For that reason, people taking out a mortgage are awfully reliant upon the banks’ base rate. Home owners who have mortgages to pay back are awfully reliant upon their jobs. Those jobs are in threat from several fronts. It therefore makes sense when homeowners vote for and advocate for political parties that offer policies for economic prosperity and full employment, in spite of the long-term maintainability problems of such policies. Arguments for and against home ownership One argument supporting home ownership is that it raises the amount of attention people have for their property. The reason of this argument is straightforward: individuals will take more care of their homes if they possess it as they feel it will improve the value of their homes, and they will enjoy owning a lovely home. In spite of this, there is a strong counter argument to be expressed. Consecutive house condition surveys have shown a speedy growth in the collapse of Britain's housing stock (Mullins & Murie, 2006, pp. 72-94). A number of the greatest increases are in the stock occupied by owners. So what is the possible reason for this? It is crucial to understand that just because a person owns a home does not mean that they have disposable earnings. Recent surveys in house conditions have shown shocking increases in the extent of poor shape in owner-occupied homes because the owners cannot afford to fix them (King & Oxley, 2000, pp. 83-106). It is more sensible to view a home’s mortgage payments as a liability rather than viewing the home as an asset, presuming that a mortgage must be paid. Every month, the house does not generate any income, but the mortgage has to be paid. Despite the fact that the home’s market value may be increasing, that is fundamentally irrelevant if the home is not sold. The cost of rent makes renting a home an obviously liability. On the other hand, with rented housing the landlord is legally accountable to keeping the home above a certain standard. Additionally, the proceeds generated by the landlord can be used in improving to the home, whereas a person living in a home with a hefty mortgage may find it hard to put money aside for making improvements. Another argument in supporting home ownership is that homeowners are wealthier and comfortable. Instead of paying rent on a monthly basis and acquiring no long-term tangible asset for it, the homeowner owns the property when the mortgage is finally paid off. The landlord is left with nothing while the homeowner owns the home. Nevertheless, a crucial counter-argument that can be given is that average statistics show that while homeowners are wealthier and more comfortable than non-owners; this may hide pockets of overwrought economic state of affairs within the tenure. The argument here is that homeowners with mortgages to pay are under tremendous stress to pay off that mortgage, especially if interest rates are high. But for the homeowner selling the house, it is not a financial asset. The Joseph Rowntree Foundation associates poverty with home-ownership (Lund, 2006, pp. 51-83). The foundation finds that home-owners in Britain today contribute to half of all people living in poverty. The foundation concludes that the way in which tenure is from time to time used as a measure of comparative advantage or disadvantage and the social distribution of poverty should be reconsidered. Another argument that supports home ownership is that owning a home is like being a king or queen of a small kingdom. Owning space gives one the chance to enjoy complete privacy and lets one easily choose on such factors such as adding a few extra elements and renovations. This is would not be the case if an individual had a landlord and if the person shares his walls with other tenants. Simply put, being a home owner makes an individual free to implement whatever they want on their piece of property. Purchasing a house also means that a home owner can take advantage of tax breaks. Owning a house cuts the amount of taxes the homeowner has to pay, although this will also depend on one’s specific circumstances. Another advantage of being a homeowner is equity. In the beginning, it will feel like the mortgage interest rates are taking a greater bite off of the home owner’s monthly payments. The longer the homeowner keeps on paying though, the more likely the home will increase in value. Eventually, the homeowner may be able to borrow against the equity of his home. Later on, the homeowner may also be able to sell his home for a profit if it increased in value. Another argument that is against home ownership is that buying a home is an important and significant financial decision, and as such, the home owner will have to consider and worry about monthly rates, fees, insurances and down payment terms. I support this argument because, for one, the down payment alone can be a bit high-priced for some people. In the United States, Mortgage companies may charge up to 10 percent unless an individual has a Federal Housing Administration insured loan that is now only around 3.5 percent (Clapham, 2005, pp. 63-82). Furthermore, there is also no assurance that house values will continuously improve. The cause of this is market factors beyond the homeowner’s control and poor maintenance. As current reports show, generally, housing values in have dropped, thus increasing monthly payments and placing homeowners at greater danger of failing to pay loans. This has led the United States government to start the Home Affordable Modification Program, which homeowners may or may not meet the requirements (Schwartz, 2006, pp. 112-146). Needless to say, there is always a possibility that mortgage and real estate conditions could get better in the future. Maintaining a home is an important concern in itself, regardless of whether the homeowner is in Arizona mansions or a small Arizona condo. No home can stand in good condition ad infinitum. As the years go by, the homeowner is likely to come across problems and damages that have to be taken on by no one else but the homeowner. Landlords frequently have to bear the brunt of this concern if one is just renting. Home ownership can also be quite complex. Even so, despite the challenges, an individual should contemplate owning a home under consideration. Perhaps all the individual has to do is to wait for the right conditions to favour him. Another argument against home ownership is that it causes unemployment. Any society, small or large, that has vested a lot one industry is susceptible to shifts in the economic landscape. As much as it is often blamed, globalization is not the only source of change. As any cafe owner with a Starbucks can confirm, domestic competition can be just as powerful, and so can management blunders and technological change. Cities can struggle if they concentrate too much on an industry and then find that times change. Wherever individuals seem particularly eager to own their own homes, as in some U.S. states, the United Kingdom and Spain, employment suffers as a result. Andrew Oswald, an English economist, has shown that across the United States and the European countries, high levels of home ownership are concurrent with high levels of unemployment (Kemeny, 1995, pp. 32-68). High levels of unionization and generous welfare benefits are more conventional factors that do not explain unemployment nearly as well as the trend towards owning houses. Staying flexible and renting a home always does wonders for people’s chances of finding an interesting job to do. Recent research suggests that homeowners form denser local networks, which help uncover local jobs (Kemeny, 1995, pp. 76-92). Nevertheless, commuting distances are longer and the jobs tend to be less well-matched. The argument is that everything possible should be done to sell a house and buy a new one or free up impediments to renting. Even if this was all done, economists Joe Gyourko and Ed Glaeser argue that the one serious barrier remaining is that houses do not walk. No matter how bad things get in Treorchy or Detroit, the houses will still be there, and people will want to live in them if they were cheap enough. The probable result is a gloomy kind of segregation where those people who feel that they can find a good job in the cities will move there and pay the high rents while those people who have less confidence would rather have no job in a cheap house than have no job in an expensive house. Conclusion There are without doubt many lots of advantages of owning a home, but it is customary for people to make assumption about the benefits which are bogus. Being the owner of a home without a mortgage liberates a person from having to pay mortgage payments or monthly rent. Then again, with a mortgage, the significance of home ownership comes in as expectations of increase in house prices continue. The mortgage model is faulty and unsustainable. As much as it has worked in the past, it will not necessarily work in the future. A major catastrophe is drawing near, when home owners find themselves in equity that is negative and house prices crash. The longer that catastrophe is put off, the greater the fall will be. References Angel, S. (2000). Housing policy matters: A global analysis. Oxford University Press. Bramley, G., Munro, M. & Pawson, H. (2004). Key issues in housing: Policies and markets in 21st-century Britain. Palgrave Macmillan. Clapham, D. (2005). The meaning of housing: A pathways approach. Bristol: Policy Press. Doling, J. (1997). Comparative housing policy: Government and housing in advanced industrialized countries. Macmillan. Kemeny, J. (1995). From public housing to the social market: Rental policy strategies in comparative perspective. London: Routledge. King, P. & Oxley, M. (2000). Housing: Who decides? Macmillan. Lowe, S. (2004). Housing policy analysis: British housing in cultural and comparative context, Palgrave Macmillan. Lund, B. (2006). Understanding housing policy. Bristol: Policy Press. Mullins, D. & Murie, A. (2006). Housing policy in the UK. Palgrave Macmillan. Schwartz, A.F. (2006). Housing policy in the United States: An introduction. Routledge. Read More