This admission from a leading Labour politician is an astonishing breakthrough for the Intergenerational Foundation and its campaign for intergenerational fairness. Daniel Harrison, IF supporter, economist, and author of Intergenerational Theft explains the significance of this revelation.
Vindication of IF’s campaign to tackle intergenerational inequality
To admit that our political system is systemically biased towards the old is virtually a taboo subject within the Westminster bubble. And yet, despite overwhelming evidence demonstrating that “The economy has become skewed in favour of baby boomers and against millennials”, the majority of politicians (of both left and right) are very reluctant to publicly talk about intergenerational inequality, let alone admit it is a reality or – heaven forbid – actually do something bold about it.
So this candid public admission from London Mayor, Sadiq Khan, one of the first major politicians to admit to intergenerational inequality and to concede it is also damaging our economy, is hugely significant.
The Mayor was speaking at the Centre for London’s annual conference on Monday 11 November and commenting upon a new report titled “Housing Affordability and Economic Productivity” that had been commissioned jointly by City Hall, London Councils, Trust for London and the G15 (the 15 largest housing associations in London), and tasked with examining how housing unaffordability was harming London’s economy.
Sadiq Khan stated that “A lack of affordable homes is having a profound and devastating effect in every corner of our capital, impacting every part of our progress.
The housing crisis is the “everything crisis’
Housing hasn’t just ‘become a bit pricey’. It’s much more profound and all pervasive. That is why Sadiq Khan is right when he stated that the lack of affordable homes is having a “profound and devastating” effect upon Londoners.
Lifetime housing costs for young people (at a national level) are three times higher relative to incomes than they were for baby boomers. And it’s even more severe in London. But fundamentally, the lack of affordable housing has become a source of national shame in both London and the wider country – and it’s a problem government clearly doesn’t want to solve – but why? Because successive governments have increasingly pandered to the older homeowning majority (who tend to vote more) by restricting house building (despite the rhetoric) to keep house prices artificially high and make that cohort feel artificially better off.
For young and working-aged people, the consequence is that the housing crisis has now become the “everything crisis” and has serious repercussions for every aspect of people’s lives and this has profound ramifications for society.
- Increasingly unaffordable housing means that the average age of a first time buyer (FTB) has been relentlessly increasing and is now 35 in London, (and 33 for the rest of England, demonstrating that it is hardly a London only problem). This long period of living at home and / or living within the (insecure) private rented sector (PRS), creates an extended adolescence, where it’s very difficult to move to the next stages of life such as home ownership, marriage, or children.
- House price multiples (at the national level) have increased from ~4.5x from 1945-2000 for older generations to now being 8x the average salary for younger people, with the situation being even more acute in London where it is 13x to 14x average London salaries. However, because mortgage lenders will typically only lend you ~4.5x your income this forces couples to both work, combine salaries, and become dual income couples which has now become the norm.
- For those unable to buy, renting is becoming ever more expensive and is rapidly outpacing wage increases, where London at the sharp end of the housing crisis with London rents having increased 9.7% in the past year alone reaching £2,114 in 2024. Across England, average rents have reached £1,319 in 2024.
- The fertility rate has fallen to its lowest on record at 1.44. Housing, the cost-of-living pressures, exorbitant costs of childcare, and the financial pressure to stay in work and a maintain a career are the primary reasons that couples are delaying children or not even having them at all. In modern Gen Y/Z parlance, young people have become ‘financially infertile’. And a falling birth rate has deep demographic consequences given we have an ageing population which contributes to the worsening ‘dependency ratio’ of working-age taxpayers supporting retired people through our unfunded ‘pay as you go’ state and public sector pension systems. Furthermore, it speaks to the pros/cons of immigration. (but let’s not go down that rabbit hole here though…).
So the housing crisis is not actually about housing per se; it’s about people’s lives. And Sadiq Khan is absolutely right to state that unaffordable housing “is having far-reaching implications for the demographics of our country and our capital.”
Intergenerational inequality results in low economic growth
Our recent pre-budget article previewing the Budget 2024 concluded that Intergenerational unfairness, wealth inequality and low growth are interlinked.
Sadiq Khan vindicated our clear analysis stating that “In London, high house prices and rents relative to income are holding our economy back,” Khan continued that “The new research we are publishing shows that affordable housing in London is absolutely critical if we are to realise our national growth ambitions.”
Khan went into more detail and revealed the economic impact of the housing crisis, citing the research report findings that “Our analysis shows that even a small change for the individual can produce something far greater for the collective. In fact, just a 1% decrease in house prices could boost London’s economic output by £7.3 billion over a decade. In short, investment in building homes people can afford, will lead to the growth we need.“
Councillor Claire Holland, Chair of London Councils, also agreed that “The chronic shortage of affordable housing in the capital is driving up homelessness and putting the brakes on London’s economic growth.” Holland continued that “As this important new research reveals, improving housing affordability in London would bring significant economic benefits, as well as helping those Londoners most impacted by the housing crisis.”
Furthermore, Susie Dye, who heads Trust for London’s Tackling the Housing Crisis programme, reaffirmed the point that “The housing crisis is damaging Londoners’ health and living standards. Now we can see that it’s holding back our economy, too.”
Conclusion
The cat is out of the bag. These statements, and the report that underpins them, are compelling evidence demonstrating that high house prices should never be perceived as cause of celebration – such is the conventional wisdom about the ‘health of the housing market’. No, it’s the exact opposite: High house prices are actually a sign of a deeply unhealthy and intergenerationally unfair society as they are not only a transfer of wealth from young to old, but they are also a drag upon our economy, they make us uncompetitive as a country, and more profoundly, they damage the life prospects of young people.
The Intergenerational Foundation is starting to win the argument with mounting evidence that “The economy has become skewed in favour of baby boomers and against millennials”, and that government should reverse policies which overtly favour one generation over another.
For example, Labour is making the fundamentally wrong political choices by: increasing National Insurance employer contributions– which as the IF reported, hits the young the hardest,; increasing student fees; and also maintaining the unfunded triple lock on the state pension which young and working-age people are paying for through record levels of taxation. “This is an obvious intergenerational unfairness in action and the Chancellor has chosen to further strap the young to pay for the [pensions] triple lock of the old.” These are political choices not inevitabilities.
But more fundamentally at the macroeconomic level, the current and future growth forecasts for the UK economy vindicate our view that Labour will continually fail to achieve strong economic growth unless it also tackles intergenerational inequality and also wealth inequality.
Nonetheless, Sadiq Khan’s clear admission of intergenerational inequality is an astonishing breakthrough for the Intergeneration Foundation.
We must keep up our tireless campaign for intergenerational fairness and keep up the relentless pressure on politicians to admit, address, and solve the profound intergenerational unfairness that young and working-age people are facing.
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Image courtesy Wikimedia Commons: American Embassy: https://www.flickr.com/photos/usembassylondon/30885068755/