But while the pandemic may have accelerated the divergence between house prices and the real economy, it is far from a new phenomenon. Instead, soaring house prices have been a defining feature of many advanced economies for decades. In the latest webinar in IIPP’s ‘Who owns what and why’ series, panellists discussed one of the most significant shifts underpinning the global housing crisis: the rise of the home ownership ideology.

Today the idea that increasing home ownership is desirable is almost universally accepted across the political spectrum. But this wasn’t always the case. As Sebastian Kohl, Senior Researcher at the Max Planck Institute for the Study of Societies, explained in the webinar, the idea that home ownership is a superior form of housing tenure can be traced back to the aftermath of the First and Second World Wars, when political leaders viewed increasing homeownership as essential for maintaining social harmony and staving off the threat of more radical political unrest.

“Conservative thinkers popularised the idea that workers can be convinced not to join the revolution if they own a house with a nice garden”

In the decades that followed, successive governments enacted a series of major reforms in order to widen access to the benefits of homeownership. Taxes on land and property were removed, and subsidies for home ownership were introduced.

With the arrival of Margaret Thatcher, the state withdrew from house building, and councils were forced to sell their housing stock through ‘Right to Buy’ and prevented from building more. Rent controls were abolished and the private rental market was deregulated, fuelling a new ‘buy-to-let’ frenzy.

Crucially, restrictions on mortgage lending were removed, and banks were incentivised to become active players in the mortgage lending market. This unleashed a flood of new mortgage lending, as the role of banks in the economy shifted from lending to businesses to lending to finance home.

Although the aim of this agenda was to increase homeownership, the primary effect was to transform land and property into a lucrative financial asset. Since 1995 alone, the value of Britain’s housing stock has increased by over £5 trillion ­– accounting for three-quarters of new household wealth . In the early 2000s, house price inflation was so great that 17% of working-age adults earned more from their house than from their job.

For those who own property, this has provided enormous benefits. But for those who don’t, it has come at an immense cost.

The case for the ‘property owning democracy’ was always predicated on the assumption that the benefits of homeownership could be expanded to ever growing numbers of people. But as Brett Christophers, Professor in the Department of Social and Economic Geography at Uppsala University, highlighted in the webinar, it’s clear the project is now failing on its own terms.

“Conservative thinkers popularised the idea that workers can be convinced not to join the revolution if they own a house with a nice garden”, Kohl explained.

In the UK, the Conservative Party began to embrace the vision of a ‘property owning democracy’ in 1946, after the Labour Party won power on a promise to undertake a vast program of public home-building. The term ‘property owning democracy’ was borrowed from Noel Skelton, a Scottish lawyer who coined the term in 1923 in a series of articles for the Spectator magazine.

At the same time, the housing boom has been accompanied by soaring homelessness in almost every advanced economy. As Leilani Farha, Global Director of The Shift and the former UN Special Rapporteur on the Right to Housing, explained in the webinar, the rise in homelessness should not be viewed as separate from the rise of housing as a financial asset, but as an inevitable counterpart to it. “The increasing value of housing as an asset and increasing homelessness are not disconnected phenomena. They are symbiotic”.

Perhaps the key lesson of the home ownership experiment of the past half-century is that it is a zero sum game. While expanding home ownership can improve peoples’ lives by giving them security and access to a capital asset, beyond a certain point it creates the conditions for its own demise.

This is because the wealth that is accumulated through the housing market is gained at the expense current and future generations who don’t own housing, who pay the price in the form of higher rents and higher rates of homelessness. Rising prices eventually choke off demand from first-time buyers, and although this can be temporary alleviated via looser credit constraints and more government subsidies, the effect of this is simply to push up prices further — creating a severe affordability crisis and a range of other harmful side effects.

If the ‘property owning democracy’ is failing, why are politicians still so committed to it? Part of the reason may stem from a widespread belief that high levels of homeownership are somehow related to economic success. However, examples such as Germany, Switzerland and Austria, which all have homeownership levels below 50%, demonstrate that high levels of homeownership are not a prerequisite for a prosperous society. Meanwhile, many of the poorest countries in Europe (e.g. Romania, Lithuania and Bulgaria) have among the highest levels of homeownership.

In reality, the stubborn commitment to home ownership likely has more to do with politics than economics. In countries where the majority of the electorate are homeowners whose wealth is tied to house prices, there is a strong political incentive to keep stoking house price inflation. In addition, the interdependencies between the banking sector and the property market mean that any downwards pressure on house prices would pose a threat to financial stability.

As Kohl put it during the event: “The repayment of mortgages is now essential for macroeconomic stability. But if house prices collapse, there is a risk that many mortgages won’t get paid back.”

This has placed politicians in somewhat of a bind. Any policies aimed at tackling the affordability crisis risks generating an electoral backlash from the majority who don’t want to see their wealth eroded, and destabilising the banking sector and triggering a possible recession. Faced with such incentives, it is perhaps unsurprising that few politicians have openly challenged the home ownership agenda.

Among the panellists participating in the webinar there was a strong consensus over the broad measures that need to be introduced to tackle the housing affordability crisis: tax land and property more effectively; regulate the private rented sector; restrict the flow of speculative funds into the property market; and scale up social and cooperative housing.

But deciding what needs to be done is the easy bit. Establishing how to do this while commanding the support of the electorate and avoiding a financial crisis is perhaps one of the greatest political challenges of our time.