Britain’s reputation as a nation of home-owners is under threat. While it’s true that just under two-thirds (65 per cent) of us own our own place, the home-ownership rate has fallen from 73 per cent since 2007. This downward trend has occurred despite the proportion owning their home outright continuing to rise gently in recent years (thanks to a combination of demographics and the paying off of mortgages among many in the baby boomer generation).
The overall decline has instead been driven by a very sharp reduction in new entrants to home ownership, with the proportion of households buying a home with a mortgage falling by a fifth since 2007 (from 47 per cent to 38 per cent).
With house prices outpacing earnings growth for most of the last 20 years, affordability has long been a problem for younger families. And, while the financial crisis sparked a modest and temporary correction in prices in some parts of the country, it had an even deeper and longer-lasting effect on pay. Add in the overdue tightening of mortgage criteria that has taken place in recent years – driven initially by the credit crunch and more recently by regulation – and buying a home appears an ever more distant dream for millions.
As the chart below shows, low to middle income households saving 5 per cent of their disposable income a year were able to accumulate the deposit required for an average first time buyer home over the course of around three years in the 1990s. Today that figure is 24 years.
Given this backdrop, it’s perhaps unsurprising that significant numbers of Britons are resigned to the prospect of never owning, as highlighted in new data from the Bank of England. It shows that just under-half (46 per cent) of the one-third of families who don’t already own their own home believe they’ll never do so (only 32 per cent think they will definitely buy, with 22 per cent saying they don’t know).
As the next chart shows, the proportion is inevitably higher among lower income households – with 57 per cent of non-owners in the poorest 20 per cent of the population saying they won’t ever buy. But the figure still stands at one-third (33 per cent) in the fourth quintile and one-quarter (25 per cent) among the richest 20 per cent.
As the final chart shows, members of the ‘never-buy’ population are much more likely to point to negative ‘can’t buy’ reasons (relating to costs, access and financial concerns) than to active ‘won’t buy’ lifestyle choices.
Close to half (46 per cent) describe being unable to afford up-front purchase costs such as deposits, stamp duty and estate agent fees as one of the three most important factors behind their response; with a third (33 per cent) pointing similarly to the unaffordability of mortgage costs. A similar number (32 per cent) don’t think they could access a mortgage due to their credit history or employment status.
In contrast, just 15 per cent say they won’t buy because they don’t want to be in debt and 13 per cent don’t want the commitment. A sizeable minority (17 per cent) say they like their current home and therefore don’t want to move, but this figure drops to 11 per cent when focusing on the under-45s. And just one-in-ten (11 per cent) say they prefer the flexibility of renting, highlighting that this is rarely a first-choice destination.
Given these responses, it is easy to understand why politicians remain pre-occupied with offering voters hope when it comes to getting on the housing ladder. In recent years the Chancellor has introduced a myriad of new schemes, including four Help to Buy programmes (shared equity, mortgage guarantee, ISA and London) and Right to Buy extensions. Yet in truth, such demand-side approaches can only ever help on the margins, bringing forward the moment at which some buy their first home, but not being sufficient to get low and middle income families in higher-cost parts of the country over the line.
Indeed, to the extent that these schemes have stoked demand and so propped up house prices in recent years, they have served to make home-ownership even less attainable for many, while increasing the gains flowing to older home-owners who have been the main beneficiaries of the sustained housing boom – an important part of the growing generational divide identified by David Willetts and others.
Increasing housing supply offers much more potential for dealing with the aspiration gap on housing. And the government took some welcome steps in this direction with its doubling of the housing budget at the Autumn Statement. Yet boosting supply is inevitably more difficult than supporting demand, with practical (housebuilders’ capacity) and political (voters’ resistance) barriers meaning that meeting the ambition of one million new homes by the end of the parliament is far from guaranteed.
Of course it would be wrong to put all our eggs in the traditional ownership basket. Government strategy must also be focused on improving the social and private rental offer to families – in terms of prices, appropriateness and standards – and build on efforts that allow people to part-own their homes or save for a deposit while they rent.
Housing has long been a national obsession, yet efforts to deal with the fundamental mismatch between supply and demand rarely move beyond political posturing. With the situation only likely to get worse, offering realistic housing hope for the half of non-owner households who don’t see themselves ever buying means taking a much more forensic approach to this most British of problems.