Radical policy reboot required to deliver PM’s promise to “turn generation rent into generation buy”

Four-in-five (80 per cent) non-home owning 25-34-years-olds completely lack the required savings and earnings levels to be able to buy a typical first-time buyer home in their region, although windfalls, major lifestyle compromises or pooling resources with a partner does bring them closer to owning, according to new Resolution Foundation research published today (Thursday).

The report Hope to buy – supported by Lloyds Banking Group – shows that youth home ownership has fallen massively since its 51 per cent peak in 1989, halving to just 25 per cent in 2016 before rising to 28 per cent before the pandemic in 2019 – equivalent to 1.3 million people missing out on home ownership.

These falls pose problems for those across the UK – not just southern England – with youth home ownership across all nations and regions outside London ‘levelling down’ to rates of around 30 per cent by 2019 (with London even lower at around 15 per cent).

The biggest falls between 1989 and 2019 have taken place among those who have consistently been the least likely to own homes: single people (from 24 to 11 per cent) and low-income households (from 26 to 12 per cent). Black young people have also seen their rates of home ownership more than halve, from 19 per cent in 2001 to 8 per cent in 2019.

These falls are not, as some have claimed, down to changing preferences or demographic shifts. Four-in-five renters (80 per cent) would still prefer to own a home, and increasing numbers of full-time students, immigrants and single young people explains just 13 per cent of the drop.

Instead, the report notes that financial barriers – including greater deposit requirements and house price to earnings ratios – are the main drivers of this fall. Four-in-five (80 per cent) young non-home owners have neither the savings nor the earnings to buy a typical first-time buyer (FTB) home in their region.

But those with the resources to buy do – 4 per cent of young non-owners have both the savings and earnings to buy a home and have not yet bought.

The report identifies three key means that young people are using to get onto the property ladder, though these are unfeasible or simply unavailable for many:

1. Saving hard. The traditional means to a deposit – increasing savings – improves the ability of FTBs to afford a house. Five years of saving 5 per cent of gross earnings boosts the proportion with sufficient savings and earnings from 4 to 11 per cent. But as private renters typically spending around a third (32 per cent) of their income on housing, saving this much is easier said than done.

2. Windfalls. Increasingly key to home ownership, before the pandemic over a quarter (28 per cent) of FTBs in England had help from family or friends to cover the deposit, while 6 per cent made use of an inheritance, and around 15 per cent used a Help to Buy equity loan.

3. Coupling up. Couples have consistently been better able to afford the regional average FTB house than single people, but the gap is widening: young couples in 2019 were almost five times as likely to be home owners than single people, compared to three times as likely in 1989.

Despite the massive challenges in getting onto the housing ladder, the Foundation says that policy action can make a noticeable difference. Increasing the proportion of young people who can afford a home by just 2 percentage points would help 80,000 families.

However, the Foundation says that it would take a radical policy reboot to drive a major increase in youth home ownership levels and deliver on the Prime Minister’s promise to “turn generation rent into generation buy”. This could include reducing demand for housing by limiting the purchasing power of second-home owners, shifting the risk of lending to more FTBs to Government, or providing substantially larger subsidies to FTBs.

This means that as well as supporting home ownership, the Government should also focus its efforts on improving conditions in the private rental sector, so that everyone has access to a secure and high-quality home.

Adam Corlett, Principal Economist at the Resolution Foundation, said:

“Youth home ownership has been falling sharply in every part of the UK over the past three decades, and today just four per cent of young non-home owners have both sufficient earnings and savings to afford a typical house where they live.

“Too many young people are having to rely on windfalls from others, or pooling resources with a partner, to get closer to owning. These options simply aren’t available for everyone, and more needs to be done to deliver on the Prime Minister’s promise to “turn generation rent into generation buy”.

“But with low youth home ownership with us for some time to come, policy makers must also focus on improving the private rental sector, so that everyone has access to a secure and high-quality home – whether they own it or not.”

Andrew Asaam, Mortgage Director at Lloyds Banking Group, said:

“We are pleased to partner with the Resolution Foundation on this significant piece of research into home ownership in the UK today, exploring both the barriers and potential solutions to help more young people achieve the dream of owning a home of their own.

“We hope the research findings will provoke debate and discussion about how we can collectively deliver the high-quality, sustainable and affordable homes that Britain needs to prosper.”