Speaking at the Northern Housing Consortium in York today, Miles warned that, in the short term, the reduction in owner-occupier levels from its 2007 peak will cause “severe transitional difficulties”, particularly for house builders, but could ultimately prove positive for the UK.
He argued that the banking and housing markets will be more stable by forcing people to have greater equity in their homes, reducing the likelihood of mortgage arrears, personal insolvencies and forced property sales.
In addition, a lower owner-occupier rate and bigger rental sector would help offset the tax distortions created by a system that makes owner-occupation “inefficiently high” and discourages renting, again stabilising the property market and wider economy.
As a result, Miles said that monetary policy will have to shift to take account of the lower owner-occupier rate, because changes to Bank base rate may have less impact.
Miles said: “A sudden transition to a situation where the average age of first-time buyers is significantly higher is particularly difficult, because for some years the flow of new buyers falls very sharply, before recovering. This has major impacts on house builders.
“Recently announced government policies to help people buy new properties with a lower deposit are designed to help offset this and ease the transition.”
He added that shared ownership and shared equity schemes will only bridge some of the gap between mortgage loans and deposits of first-time buyers, but a wider range of such deals will allow buyers to decide how much house price risk they take on.
Miles said: “As a result of the major changes in financial markets in the wake of the crises of 2007 and 2008, the ways in which home-ownership is financed are changing. Many of these changes will be permanent.
“More equity will be used by new buyers to finance house purchase than was typical in the years before the crisis. Some of that equity will come from outside financing – which creates benefits in terms of risk sharing. But much will have to come from buyers.
“That is likely to mean a lower rate of owner-occupation and a bigger rental sector. Today this is causing severe transitional difficulties.
“But in the longer-run this is not likely to be a source of major net losses. To the extent that it offsets tax distortions and creates a more stable housing market it will create some gains. Monetary policy may need to re-calibrated; but it will not be less effective.”
