The long-term problem for “generation rent”

We need to stop relying on home-ownership as the only way to build wealth if we’re to have an adequate social care system.

It’s been a bad few weeks for social care. First the faltering of Southern Cross, then Panorama’s revelations about abuse at residential homes. Now, the Equalities and Human Rights Commission reveals shocking levels of neglect among older people cared for at home.

Coming on top of a set of daunting demographic trends, it all means Andrew Dilnot’s review of social care funding – due out in early July – could not be more timely. As things stand, Dilnot’s proposals don’t offer the sustainable solution they claim to. That’s because they’re based on an assumption of home ownership that’s becoming obsolete for many ordinary families.

One of Dilnot’s central recommendations is expected to be that individuals should pay for their own social care up to a lifetime cap of around £50,000. After that, the government will step in to insure people against catastrophic costs. Analysis by researchers at the University of Kent estimates average lifetime costs for residential and community-based social care at around £18,650 for men and £41,350 for women. In other words, in most cases, government won’t be called on at all. As in the current social care system, under Dilnot, most people will pay for the care they need themselves.

Because few people have ready access to £50,000 in savings, Dilnot’s recommendation is predicated on people releasing equity from their homes. On the upside, this means people can stay in their own home into old age while making use of their house as an asset and relieving the government of some expense. As today’s asset-rich baby boomer generation nears retirement, that all seems sensible. The question is: how many of the old in future generations will have a home to draw on?

Far fewer than today. One million new households have become renters since 2005. That brings the total number of households in the private rented sector to nearly 3.5m. Although most older people on low-to-middle incomes still their own home, the percentage under 35 who are renting has tripled since 1998.

No-one can predict what will happen to house prices in the long term, but trends like these make it is possible that we are at the beginning of a major shift away from home ownership. In line with other European economies, long-term renting could become far more common. That poses a major problem for a care policy premised on equity-release from a home.

Housing is only one type of asset that people could use to pay for their social care. Other assets, from pensions to savings, could do the same job. Today, few ordinary families have much in the way of these non-physical assets. In 2008, just over a quarter of people on low-to-middle incomes reported having a pension. Less than half made regular monthly savings. For those who did, the average amount saved was less than £200 a month.

As a proud, property-owning democracy, we’ve come to rely on home-ownership as the way to build wealth. We’ve backed that up with a tax system that treats housing more favourably than other kinds of assets. But if current trends in the housing market continue, the gap between home owners and long-term renters will affect far more than the housing market. If something isn’t done to boost other forms of asset-ownership, it could also bring down the social care financing system that we’re about to put in place.

This article first appeared in the New Statesman