As the old popular adage goes: an Englishman’s home is his castle. The posher version says that Britain is a property-owning democracy. Most of us own our own homes and that’s one of the things, it’s said, that makes our country a stable and relatively peaceful place. We have a stake in that stability: the bricks and mortar within which we live.
But this could all be about to change. We may be moving into a world in which only the rich and those old enough already to have got on to the property ladder own their own homes. The rest will be forced to rent. That’s the conclusion of a report out this week from the Halifax building society which surveyed 8,000 young people between the ages of 20 and 45. It came to the view that the next generation should be called 'Generation Rent'.
The report found that only 5% of this generation was making the spending sacrifices necessary to save for the deposit on a new home. Another report found that young people are now spending on average sixteen years renting before buying their own home, pushing the average age of a first-time buyer up to 37. The National Housing Federation predicts this could soon rise to 43.
All this is a long way from Mrs Thatcher’s dream that home-ownership in Britain could be boosted so that almost everyone would own their own home if they wanted to. She introduced all sorts of measures to help bring this about, including the sale of council houses to their tenants. The proportion of housing in owner-occupation rose to over 70%. Now it seems set to fall far below that.
Why has there been this abrupt change in direction? One of the chief causes is the financial crisis of the last four years. Before that, banks and building societies were so keen to lend money that many were giving out hundred per cent mortgages – that’s to say, providing them without the need for any deposit at all. The sizes of the loans available soared too – funds were provided to the value of many multiples of borrowers’ incomes.
All that changed with the crash. Lenders became super-cautious in who they lent to and how much. In particular, they have been demanding deposits of 25% or more of the value of the properties being bought. This is one of the chief reasons why many young people now think home-ownership is beyond them – the amount they have to save before they can even ask for a mortgage is so great that it does not seem worth their while.
But everyone has to live somewhere. The result is that demand for rented property has risen and that means, by the law of supply and demand, that rental prices have risen too. The result is that young people forced to rent are having to fork out an even greater proportion of their income on rent, leaving them with even less scope to save.
Only the children of affluent middle class parents have much chance of breaking this vicious cycle. Those parents now seem to take it as a matter of course that not only do they have to fork out large sums of money for their kids’ university educations, but they also need to shell out large deposits to get those kids on the property ladder. Those young people without affluent parents stand little chance of owning their homes for years.
Does any of this matter? Some would say it is actually a useful corrective to what was an irrational British obsession with owning our own homes. Germans, for example, have never been so interested in doing so. The proportion of Germans owning their own homes is far lower (though rising). Instead they have tended to invest their savings in stocks and shares. Some attribute Germany’s greater economic success at least in part to this: there has been greater availability of savings to invest in industry and that is what has financed Germany’s economic success.
Renting is also better for labour mobility. It’s far easier simply to give up a rented property if a new job takes you to another part of the country than to have to go through all the rigmarole of selling a house and buying another one.
But even if all that is true in the wider scheme of things, the shattering of the dream of home ownership for the next generation in Britain will have some pretty bad consequences. In the first place, it will have effects within the housing market itself. A steady supply of first-time buyers has been necessary to keep the market fluid. Only if there are such new buyers is it possible for existing home-owners to trade up and buy something bigger and better, as they often need to do when they start families. Now there is a danger of them being forced to stay in cramped conditions simply because they can’t sell the flats they bought when younger.
Another consequence is that in the place of first-time buyers, investors wishing to buy to rent will snaffle up the properties at the lower end of the market. That at least will have the benefit of moderating the rise in rents. But it will also maintain upward pressure on house prices, helping to keep them beyond the reach of the young. And it will exacerbate the generational difference between the haves and have nots in the property market. More and more people who already own their own homes will become landlords owning additional properties they rent out, while fewer and fewer young people have own any property.
In the longer term, those unable to get on the property ladder will, in increasing numbers, lack the security that home ownership gives them in old age. That means more may well become dependent on the state.
So what can be done? The current dire prospects for young would-be first-time buyers may well moderate as we emerge from the worst of the financial crisis. In particular, it’s likely that the size of deposits demanded by mortgage lenders will fall from the current 20-25% over time, though it’s never likely to go back to the giveaway era before the crash – and just as well too, if we want to avoid another bubble and another crash.
The main thing that’s needed, though, for the next generation not to remain Generation Rent, is for more houses to be built. Recent years have seen far fewer houses built every year than was the case ten years or so ago, and spectacularly fewer than back in the fifties and sixties. More house-building would moderate both house prices and rents.
Once again, emergence from the aftermath of the crash will see activity in the construction industry increase. But a really significant increase in house-building requires something else: a change in our planning policies. Restrictive planning laws, often introduced in response to political pressure from those worried about the concreting over too much of our green and pleasant land, have certainly been, in part, responsible, for the low level of house building in recent years. But are we ready to relax those laws?
What’s your view?
- What experience do you or your children have about the difficulties of becoming home-owners?
- How important do you think home ownership is, or do you think the British have valued it too much?
- If things go on as they are and the next generation does indeed become Generation Rent, what do you think the consequences would be?
- Do you think we should be actively trying to build more houses?
- Do you think we should ease the planning laws to make house-building easier or not?
- And do you think the dream of home-ownership is a thing of the past or could again become a dream of the future?