The Generation Game

Our national mental and financial well-being has long been inextricably bound up with the success of our housing market. Small wonder so many young people today feel disenfranchised when it is so hard in terms of supply, regulation, and affordability to secure a place they can call their own.

Housing occupies a unique position in the hearts and minds of the UK’s population, being both home and asset class and, though it is increasingly unavailable to many younger people, we expect it to underwrite our funding for everything from grandchildrens’ school fees to our funding of long-term care in our later years. The fact is that if you own a house (or houses) you are better-off than anyone who does not.

Yet while successive administrations have made countless efforts to help younger people own their own homes, home ownership is a dream that is increasingly out of reach for many thirty somethings.

Fiscal incentives to help younger buyers such as Help to Buy, Shared Ownership, and Starter Homes, have very often inflated prices and distorted value. They do serve a useful visible political purpose but, in truth, are largely confusing and result in little more than making current homeowners feel richer.

This has huge implications for younger generations who are already more indebted than their parents were at the same age and will endure a lower standard of living as a result. In the UK at least, young people face a rising cost of living when it comes to housing, higher taxes and reductions in state expenditure, as well as stagnant wages and lower paid work. They look to the baby boomers and see a gilded generation who have earned more and borrowed more than any other generation before them. For the boomers, frequent bouts of double-digit inflation have meant they have almost never had to pay for their properties.

Housing plays a key role in the intergenerational fairness debate. Rents and high house prices are an increasing burden on the young, while the elderly own increasingly expensive properties. However, longer lifespans mean that, unlike previous eras, money is not going to be recycled for new deposits. More draconian borrowing criteria, and the dire under-supply of property, will mean housing remains out of reach.

Some young people can rely on inheritances, or obtain help with a housing deposit from the Bank of Mum and Dad, especially when their parents own desirable properties in prosperous areas. But many, from more modest backgrounds, cannot do this and face higher rents while saving a deposit. If they have racked up student debt then the chances of being able to afford anything in London or the South East is negligible without parental help. It’s not uncommon to hear of young teachers going to Dubai to pay off their student debts and build up a deposit fund for a UK property.

Around 50% of all housing equity is already held by people aged 65 and over and that percentage is not set to decline. The number of housing transactions is looking stuck around the 1.2 million mark illustrating the market is becoming gridlocked, with each group in the wrong place.

The gridlock is not the fault of the occupiers. It is not true that the baby boomers who have done well out of the housing market are the selfish generation, since they don’t decide government policy. Many worry about the prospects of their children and grandchildren and hand down a lot of their wealth to them. The issue of undersupply has been compounded by the unintended consequences of improved regulation that has created stricter affordability measures, mortgage prisoners with interest only loans who cannot move onto capital repayment mortgages, as well as a reduced appetite of mortgage lenders to innovate.

Even in areas where there is a high proportion of retired owner occupiers, it is not unusual for there to be a lack of affordable retirement housing.

Too often many of the assumptions about what people want in later life are incorrect. Many smaller householders often live in larger family homes, and when they downsize still want rooms where friends, relatives or carers can stay.

Enabling the younger generation to get on the housing ladder means we have to find a way of re-invigorating the entire chain to move again. This is about supplying the right kinds of property that people want in the right areas, making it affordable, and commercially viable. Emptying trophy homes will not help. We have more demand for single person dwellings than ever before. Partly because of affordability but also because social trends such as not marrying, more divorces, as well as more older people, we need the right kind of third age property in the right areas.

Younger people are increasingly going to be asked to shoulder the cost of an ageing and politically powerful group of individuals. The low interest rate environment is an important avenue of help to the younger generations who look on with disbelief at the attention given by government to protecting areas related to older people. Housing offers one area where the current imbalance can be redressed.

If we can get beyond the silo mentality that divides housing policy and action into government, planning, developers, Housing Associations, financial services, regulators – to name a few – we could choose to build enough houses so that the cost of buying or renting a house falls, or at least stabilises. We need properties that everyone needs and that recognize people’s aspirations for their first or their last home. If we understand the nature of the housing that is needed for the future, we can tackle the gridlock of property and money and go a long way to re-balancing society. If we can avoid much of the mounting ill feeling between the generations that Brexit exposed and bring real meaning to the phrase social mobility, wouldn’t we have done well?