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First-time buyers priced out by the 'accidental landlord', says new LSE research

keysFirst-time buyers have been priced out of the ownership market by richer households who keep their starter homes for renting out when trading up, according to new LSE research.

Credit constraints requiring first-time buyers to put down larger deposits have been blamed as the main reason excluding young people from home ownership after the 2008 credit crunch. But Felipe Carozzi of LSE’s Department of Geography and Environment, found that there have also been fewer homes sold at the cheaper end of the market due to a significant rise in ‘accidental landlords’ or let-to-buy. Entry-level houses are being rented out by their previous owner-occupiers instead of sold, driving the reduction in sales of cheaper properties.

During the housing slump of 2008-2009, house prices and sales volumes fell across the UK. Dr Carozzi analysed Land Registry data on over 12 million private housing transactions in England and Wales from 1995-2013, and shows how, while the initial reduction in prices was similar across housing types, transaction volumes fell more dramatically for house at the lower end of the market.

The fraction of renters increased from 12.8 per cent in 2008 to 16.4 per cent in 2012. He found that the reduction in transaction volumes was stronger in areas where renting increased. This indicates that the rises in the number of rented dwellings was not supplied through increases in buy-to-let but rather through let-and-buy transitions.

The paper says: “Greater down-payment requirements hinder housing purchases by young households with less wealth. In turn, older and wealthier households become ‘accidental landlords’ who keep their previous home and rent it when moving up the housing ladder. The fact that these entry-level houses are rented instead of being sold is what drives the change in the composition of transactions: sales of lower quality houses make up a smaller fraction of the total when down-payment requirements increase.”

Dr Carozzi added: “Until now not much has been known about how and why the composition of transactions actually changes during boom and bust periods. My research indicates that while the composition of transactions had been stable between 2000 and 2007, there was a strong and persistent change after 2008. This coincided with the sharp reduction in the availability of high loan-to-value mortgages to first-time buyers but also fewer entry-level houses coming onto the market.”

For more information

For a copy of the paper Credit Constraints and the Composition of Housing Sales. Farewell to First-time Buyers? or to interview Dr Carozzi, please contact Jo Bale, LSE media relations office 07831 609679 or j.m.bale@lse.ac.uk

 

 

 

 

 

 

 

 

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