Lloyds Bank’s plans to become a private landlord highlight how banks and institutional investors treat housing solely as an asset to squeeze out ever greater profits. For the rest of us it is simply a basic need—and increasingly out of our reach.
Danisha Kazi is Senior Economist at Positive Money
Cross-posted from Positive Money
The economic fallout from Covid has sharpened the divide between the housing ‘haves’ and ‘have-nots’. With incomes hit hard, unemployment rising and mounting debt struggles, many more will be pushed into the Private Rental Sector (PRS). The failure and even unwillingness of successive governments to address our dysfunctional housing market is putting renters at the mercy of banks and large institutional investors. As the Financial Times reported recently, Lloyd’s bank is planning to become a major private landlord, buying up existing and new properties. Renting has increasingly become the only option for young people who remain renting well into their 30s and beyond – known as ‘Generation Rent’. Once just the sideshow of a financial system addicted to rising house prices, Generation Rent is fast becoming the main attraction.
This initiative by Lloyd’s is titled ‘Project Generation’, hinting at their objective to focus their profit-making efforts on the generation of renters that are locked out of home ownership. The low interest rate environment, which is here to stay for the foreseeable future, is driving retail banks to seek new profit streams. And there are plenty of profits to be made from ever-rising property values, rental yields and from the cross-selling of other Lloyds products to tenants, such as rental deposit loans and insurance. Lloyds, which also owns Bank of Scotland and Halifax, is already the top mortgage lender in the country with a 20% share of the mortgage market.
Our broken housing system has multiple facets, with year upon year of rising house prices while wages have not kept pace and rising rents in the PRS. A key measure of housing affordability is the ratio of average house prices to earnings, which was 8.4 at the end of 2020 compared to an average ratio of 4.5 between 1950 and 2000. That is, the average house cost over 8 times more than the average salary in 2020. The figure is much higher for London at 12.5. A recent survey found that frontline key workers are unable to afford an average priced home in 98% of Great Britain. As owning a home becomes more out of reach, the UK’s PRS has doubled in size since the 2000s, accommodating 4.7 million households. As successive government policies have enabled the decline in social housing over multiple decades, the PRS is also now home to more poor adults under 40 than other tenure types, and—dismally—1.3 million children living in poverty.
A growing body of research has shown that financialisation of our economy through deregulation of credit markets has transformed our homes into just another asset to leverage. Rather than just a mismatch between supply and demand, unregulated finance has played a critical role in driving excessive house price inflation—now more than ever, house prices are detached from the real value of their bricks and mortar. Banks like Lloyd’s know full well the dynamics at play in the housing market. They have been at the forefront of lending excessively to the sector for decades, resulting in a £20 billion taxpayer funded bailout in 2008. Since the 1990s, mortgage lending in the UK increased from 40% of GDP to 60%. Lending patterns since 2008 are largely unchanged, with the greater proportion, 55% of lending in 2017, still directed towards domestic mortgages. This has kept house prices on an upward trend.
The foray into the PRS by financial institutions is not new, but is a growing trend in the UK. For decades, buy-to-let has dominated the market with a large number of small and fragmented private landlords. More recently, big names, such as Legal and General and Goldman Sachs, have entered the build-to-rent market (BTR) alongside pension funds and other institutional investors. Between 2012 and 2018 the volume of investment in the PRS (excluding student accommodation) by institutional investors has grown from £10 billion to £35 billion. This keen interest in the PRS is not surprising as housing provides investors with an income stream from an asset that rises more than inflation over the long term. Rather than providing homes to a range of people in the PRS, they pump huge sums of money and debt into building swanky high rise flats for more affluent groups and professionals. Put bluntly, these new homes are out of reach for large numbers of renters who manage on low pay and precarious employment, with growing poverty amongst those in the PRS.
The present dysfunctions in our housing market are closely tied to the dynamics of finance in our economy. The financial crisis is a reminder of what can happen when we let the heady mix of rising house prices and unregulated capital go unchecked. Lloyds is the most prominent mortgage lender in the UK, and its plan to become a private landlord on a large scale should be a red flag. Banks’ lobbying efforts to persuade the government to prop up house prices will only intensify, as this serves the interests of our most powerful financial institutions. During the pandemic we have seen house prices soar, increasing 6.5% in the year to March 2021. This is despite the UK experiencing the worst economic downturn in 300 years. The government and the Bank of England have also propped up the housing market with policies that hurt renters. For example, stamp duty holidays and Quantitative Easing (QE) by the Bank of England have pumped huge sums into financial markets, ultimately directed towards the property market which sustains rising house prices.
It’s commonplace to see banks and financial companies advertise their social and environmental objectives as being compatible with their profit-maximising goals. Lloyds has various social responsibility projects under the banner of ‘By your side’ and ‘Helping Britain Prosper’. Yet, we may look back on this time, as we did in 2008, and wonder why there wasn’t better regulation and more oversight by the government and our trusted regulators. Banks and institutional investors are good at advertising themselves as providers of quality homes, but we have seen the hidden dark side to this warm and fuzzy fairy tale. The big banks have spent decades making huge profits by cementing the divide between the housing ‘haves’ and ‘have nots’ in our society, and now they’re setting their sights on everyone they’ve left stranded at the bottom of the housing ladder.
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