Homeownership in the UK has hit a 30-year low and housing is taking up an ever growing proportion of income, think tank Resolution Foundation’s report revealed recently.
The new report gives an especially grim outlook for young adults, those dubbed Generation Rent or Millennials, who are currently renting while they try to save up to put a deposit down for their own home.
The think tank revealed an enormous shift in the way the housing market works. Historically, the main factor deciding whether you were able to afford a house or not was your age, because as you got older you would earn more.
More recently, however, housing prices have started to outstrip the pace at which wages rise. Rent is now eating up an increasing amount of people’s wages across all age brackets. This means renters will struggle to put away savings regardless of their age.
During the 90s, the most popular way to owning your home was simple: you rented somewhere to live until you had saved up enough to put down a deposit on a property you liked. How long this took mainly depended on how quickly you managed to make your way up the career ladder, on interest rates and on the pace at which house prices were rising. But – generally speaking – it was doable.
This has changed, drastically. The rise in rent costs means “private renters consistently spend a higher proportion of their incomes on housing than any other tenure group, with significant implications for both their immediate living standards and longer term prospects.”
Additionally, spiralling house prices mean the goal is moving further out of reach even for those who are already saving.
Resolution Foundation put those trends in cash terms:
- Real average working age household income has grown by £32 a week (7 per cent) between 2002-03 and 2015, while real housing costs have grown by £21 a week (32 per cent). As a result, two thirds (66 per cent) of the income gains over the period have been absorbed by rising housing costs.
- Real average private renter household income has grown by £8 a week (2 per cent) over the period while real housing costs have grown by £19 a week (16 per cent). This means that the income gains made by this group have been absorbed by rising housing costs more than twice over.
- Real average London household income has reduced by £29 (minus 4 per cent) over the period while real housing costs have grown by £36 (29 per cent).
- Real average household income for those headed by someone aged 25-44 has grown by £12 a week (2 per cent) over the period while housing costs have grown by £25 a week (25 per cent). Consequently rising housing costs have absorbed the income gains of this group more than twice over.
- Real average low to middle income household income has grown by £18 a week (5 per cent) over the period while housing costs have grown by £23 a week (36 per cent). As a result, all and more of their income gains have been absorbed by rising housing costs.
The report concludes saying that “households can no longer rely on the passage of time to automatically reduce their HCIR [housing cost to income ratio].” Instead, they will be chasing a dream that continues to get out of reach.
The new way of making that first step onto the property ladder is very different: try to live with you parents and therefore rent-free or subsidised rent if necessary. However, this only works if your parents live in the same area and haven’t downsized yet.
The think tank makes the situation even more evident:
Generation Rent is growing up – and critically is having children. As a result, 1.6 million households with children now live in private rented accommodation, compared to 690,000 a decade ago. These families have different housing needs in terms of standards and security, and the private rented sector looks poorly placed to meet them.”
Britain’s rental sector on the other hand is mainly cheap and cheerful flats aimed to be shared by multiple people. It wasn’t build to accommodate families and it still isn’t.
“Renting in the private sector is no longer the preserve of young people who prize the flexibility and the choices it gives them,” Resolution says.
The report takes this problem one step further. Because, not only is the supply of rental accommodation insufficient for a growing number of tenants but the rising rents and house prices lead to another problem. “When we include housing costs in our wider consideration of living standards we find over half of households across the working age population have seen falling or flat living standards since 2002,” the report says.
The think tank also revealed that the current trend is not just a London problem. It’s making it way up north.
It is wrong to see housing as a living standards challenge only in the South of England. Indeed, we see the North and South converging on some, if not all, affordability measures, with households in parts of the North now having a housing cost to income ratio approaching that witnessed in London two decades ago.”
Read Resolution Foundation’s report “The Housing Headwind” here in full.
