The Chancellor of the Exchequer himself recently warned that he still expects Britain to have a housing crisis in a decade’s time, spelling further misery for today’s young people who dream of owning their own home one day. David Kingman reflects
Are you a young person who dreams of owning your own home one day? The chances are that you may well be living with your parents at the moment, as recent ONS figures have shown that 3.3 million people aged 20–34 are currently still living at home, an increase of 25% since 1996.
However, you might not be so worried about this if you imagine that things are probably going to get better in the future – after all, the economy seems to finally be showing some signs of life, and surely house prices can’t keep on rising forever? Unfortunately, the Chancellor has some bad news for you, as he recently made a public statement to the House of Lords Economic Affairs Committee in which he said he still expects Britain to have a housing crisis in a decade’s time:
“I imagine if we were all assembled again in 10 years’ time we’d still be talking about the challenge of making sure that our housing supply kept up with housing demand and we’re all legislators here and we all have a responsibility to the next generation.”
Was he being unduly pessimistic? Or is there really not much hope of things getting better?
Housing “Haves” and “Haves-Not”
The Chancellor’s remarks coincided with the publication of a new report by HSBC which suggested that his pessimistic assessment may well be along the right lines. The report, entitled Property Haves and Have-Nots – The Outlook for today’s 25–36 year olds, looked at the affordability barriers to housing that today’s younger generation are facing, and argued that those among them who fail to get on to the property ladder will be in a much weaker position when it comes to one day trying to help their own offspring buy property, perpetuating a cycle of rising social inequality.
One of the interesting observations the report made was that, contrary to what you might expect, the age of the typical first-time buyer has not risen dramatically over recent years. The typical first-time buyer in 2014 is 29, which is only two years older than it was back in the early 1980s. However, the report uses comparative data to show that today’s first-time buyers are operating in what is unequivocally a far more hostile environment than was the case 30 years ago: the average property price is over eight times higher, the average cost of a deposit is almost thirty times higher, the typical deposit is now worth 82% of the purchase price of the property instead of 12%, and the average borrower has to borrow 3.36 times their salary as opposed to 1.92 times.
As a result, the number of people who can afford to buy their own homes within this age group has fallen, and two-thirds of today’s first-time buyers now receive financial assistance from their parents. This suggests that, although the average age of a first-time buyer may not have increased very much overall, this is because more and more of the people who can afford to become first-time buyers at all among this age group are drawn from a narrower section of society. Increasingly, these days it is only the young people who earn high salaries (the average first-time buyer income of nearly £36,000 is significantly above the national average) and have wealthy parents who can afford to get on the property ladder at the traditional age when someone becomes a first-time buyer. The report refers to these fortunate individuals as Britain’s “Property Haves”.
Those members of this age group who do not share these characteristics are the “Property Have-Nots”. The report argues that members of these two groups will be on fundamentally different property trajectories for the rest of their adult lives; the Have-Nots will not move into their first home until 35, on average, by which point the Haves will be trading up into family homes. The Have-Nots will not make a similar leap until they are 42 – if they can afford to at all – which is likely to have profound consequences for the nature of family life in Britain. More children among the next generation are likely to be brought up in flats and cramped accommodation, while a growing share of the population will struggle to afford to become parents at all.
An intergenerational problem
The report’s main conclusion is that the way access to property-ownership has narrowed in Britain will have knock-on implications for old age and the next generation. HSBC predicts that the average Haves will finish paying off their mortgage at 60, compared with at least 67½ for typical Have-Nots. This will make it harder for them to retire, not to mention that holding on to mortgage debts for longer will present an additional barrier towards saving into a pension.
Having been disadvantaged by not having financial help from their own parents, the members of the Have-Not group will then be very hard-pushed to contribute money towards their own children’s efforts to get on the property ladder, perpetuating this struggle for the next generation.
This report paints a worrying picture of the future. Whereas the middle decades of the twentieth century witnessed a great deal of progress as far as the spread of property-ownership was concerned, with millions of families enjoying the freedom of owning their own home for the first time, home ownership appears destined to become the exclusive province of the wealthy, as it becomes increasingly concentrated in the hands of those who can pass on property wealth through families. The challenge facing politicians like George Osborne and his colleagues is to take proactive steps to do something about this now, so that we aren’t still having to address this unpalatable scenario in 10 years’ time.