The intergenerational divide in housing

In the second of our week-long series of articles on intergenerational themes co-published with the independent public policy think tank ResPublica, David Kingman (Researcher at the Intergenerational Foundation) explains why young people have become the biggest victims of Britain’s housing crisisbrothers walking

Margaret Thatcher famously said she wanted Britain to become a “property-owning democracy”, an aspiration that has been echoed ever since by politicians of every persuasion. However, the dream of home-ownership is rapidly turning into a nightmare for millions of young people across the country, who face a growing struggle just to find adequate housing at a price that they can afford.

At the heart of Britain’s housing crisis is a decades-long failure to deliver enough new housing units. Current estimates suggest that we would need to be adding around 250,000 new homes a year in order for supply to keep pace with the growing number of households, but house-building data show that such a level has not been achieved since the late 1970s – which has had a powerful inflationary impact on prices.

Rising prices have had the biggest impact on would-be first-time buyers, creating a generational divide. The English Housing Survey shows that in 1991 35% of people aged 16–24 already owned their own home, and the level of owner-occupation was almost 70% among those aged 25–34, but by the time the financial crisis struck in 2008/09 these levels had fallen to roughly 10% and 50% respectively. The only age group among which levels of owner-occupation have risen continuously has been the over-55s, where the figure is now approaching 80%.

Why are young people taking longer to get on the property ladder than they used to? It is often argued they are less interested in acquiring the responsibilities of home-ownership at a young age than previous generations were in the past. However, there is clear evidence to show that most members of “Generation Rent” still have the desire to get on the property ladder if they can afford it: Halifax Bank performs an annual survey among people aged 20–44 which shows that 80% of their sample aspire to own their own property, but just 44% have so far succeeded in doing so.

Britain’s housing crisis has had a number of painful repercussions for the members of “Generation Rent”. Data on household expenditure show that households that are headed by someone under the age of 30 have to devote almost one pound in every four they spend towards paying housing costs, a much higher figure than households in all other age groups. Britain’s housing crisis also has damning repercussions for social mobility, as research undertaken by HSBC shows that two-thirds of people who manage to get on the property ladder by the time they are 29 have received financial assistance from their parents, while the average age of a first-time buyer who doesn’t receive such help is 35.

Looking at all the available evidence, it is clear that Britain’s housing crisis is deepening the divide between older and younger generations, and between young people from richer and poorer families, in ways which threaten social cohesion. What can we do to change this?

The most obvious answer is that we must start building more new homes. However, this remains fraught with difficulty: at no time in the past have private developers built new homes on the necessary scale to meet our current demand, and there is so much pent-up demand that in the short-term an increase in supply would do little to improve affordability.

Given these problems, IF’s research into housing has concentrated on some microeconomic strategies that could be pursued, with the aim of making it easier for young people to get on the housing ladder.

One theme which we have pursued in particular is downsizing. IF’s Hoarding of Housing paper showed that it is far less common for older owner-occupiers to downsize in the UK than it is in America; as a result, many older UK homeowners find themeselves “stuck” in family-sized homes which are larger than they need (English homes contain 25 million bedrooms in which no-one sleeps on a regular basis), while young families with children suffer from high rates of overcrowding. IF has called for older homeowners to be given tax incentives to encourage them to downsize (such as stamp-duty concessions), as this could help bring more family-sized homes onto the market.

Property taxation was also the main target of IF’s research into the Buy-to-Let sector, which found that landlords currently benefit from tax subsidies worth up to £5 billion in total, which help them to compete successfully against young would-be owner-occupiers for properties and mortgage finance. IF has called into question why landlords should be subsidised to own multiple properties when so many young people struggle to afford decent housing, and much of the money which goes into Buy-to-Let could be invested in other parts of the economy more productively.

Neither of these solutions would be enough to completely resolve the housing crisis on its own, but changing the consumption and distribution of the housing stock will be a necessary part of the solution.