Time for some housing honesty

Published on Housing, Wealth and Debt

The return to work after Christmas is never easy. Unless you’re an estate agent: they love January. Following the pre-Christmas lull, families rush back into wanting to buy and sell their houses (helped in part by the traditional post-festivity spike in family breakdown). But for an increasing number of us, house hunting is becoming little more than an exercise in window shopping (or ‘property porn’ if you’d rather).

The share of the population owning a home has been falling since 2003, with particularly profound consequences for younger families. As the chart below shows, today’s 30 year olds (that is, the oldest members of the millennial generation born between 1981 and 2000) are only half as likely to own their house as their parents were at the same age.

Like so much of the Christmas TV schedule, this is a story that’s been on repeat for some time. Britons get that their country is no longer a nation of home owners. As research carried out by Ipsos MORI back in the summer for the Intergenerational Commission showed, 71 per cent of people (across all generations) think millennials face worse prospects than their parents in this regard. Just 7 per cent think young adults are better off. Indeed, of all of the questions asked in the survey, it was the one on which respondents were most pessimistic.

Yet, despite being pessimistic about the overall picture for millennials, new data shows that a significant share of the generation think they personally will manage to beat the gloom. The next chart takes data from the Bank of England’s latest NMG survey to show that more than half (52 per cent) of non-owning households headed by someone aged under-35 (roughly speaking, the millennial generation) expect to buy at some point in the future. And that proportion holds up even among lower income millennials.

If such expectations were borne out, around 75 per cent of millennial households would eventually own a home. That would put the generation on a par with the home ownership rates recorded among baby boomers. It would also be roughly 10 percentage points higher than the ‘optimistic’ scenario we set out in September (our ‘pessimistic’ scenario put the figure under 50 per cent). Short of a significant turnaround in housing trends, the implication is that many members of the younger generation will find their aspirations go unmet.

And, while the one-in-four (24 per cent) non-owning millennials who think they’ll never buy a home might have a more realistic outlook of the future, they’re just as likely to be unhappy with their lot. The next chart sets out the factors which this group identify as being among the three most important reasons for not owning. What stands out is that just one-in-ten of them cite positive-sounding reasons: 10 per cent say they like their current home and just 8 per cent prefer the flexibility of renting. The upshot is that as few as 1 per cent of millennials appear to be happy with the idea of never owning a home.

It’s this finding that goes a long way to explaining why politicians are so keen to be seen to be offering hope on home ownership.

And, with ‘purchase costs’ (such as the deposit, stamp duty and estate agents fees) being cited by millennials as the main barrier to owning, it’s easy to understand the temptation to focus on subsidising buyers. Measures such as the removal of stamp duty for first time buyers of property worth up to £300,000 – which Philip Hammond announced in the Autumn Budget – give the impression of extending home ownership to a wider group. But they largely miss the mark. The OBR’s assessment of the stamp duty policy was that it would benefit just 3,500 first time buyers who would not otherwise have been able to buy a home, costing roughly £160,000 per additional owner.

Supply-based approaches represent a preferable and more sustainable option, but they take time to take effect. That’s not to say government should give up, and the Autumn Budget plans for returning housing capital spending back to the levels of the 2000s (outside of the fiscal stimulus peak of 2008-10) is a very welcome one.

But it’s hard to escape the conclusion that, even if we get to grips with the longer-term problem, home ownership will remain off-limits for significant numbers of millennials. Some might expect to benefit from the bank of mum and dad in the near-term and from inheritances as they age. But such support may come too late to cover expensive family-rearing years for many households, and will never arrive for many – mainly lower income – others.

That reality raises a number of challenges for today’s young people. Over the longer-term, home ownership plays an important role in building wealth (via semi-enforced saving), providing leverage and hedging against costs and location in retirement. In its absence, alternatives are needed.

More immediately, the generally higher housing costs associated with renting leave young people with less disposable income and less opportunity to save than earlier cohorts faced. The chart below sets out the share of income allocated to rent among younger respondents to the NMG survey. It shows that 30 per cent of renters in this group spend more than one-third of their pre-tax income – a threshold that is often taken as a sign of housing unaffordability. And that figure jumps to a massive 71 per cent among the poorest fifth of millennials.

We’ll turn to the question of how the country might rise to these challenges in a forthcoming policy options paper for the Intergenerational Commission. But our politicians – unlike our estate agents – need to be more honest about the housing aspiration gap. It’s good to offer hope, but a healthy dose of realism would sharpen the focus on the broader living standards challenge posed by our housing crisis.