It’s a generation thing
Research out last week reiterated the dysfunctional state of the housing market.
Highlighting the generational divide between baby boomers and so-called ‘generation rent’, data from Savills showed £74.8bn was spent on private and social rents in 2015, compared with £73.2bn on mortgage repayments and interest.
The study revealed that £1,077bn of housing equity is in the hands of private landlords compared with £1,067bn in mortgaged homes. While the figures could be interpreted as showing that homeownership is in decline, the majority of households in Britain still own their property, with £2,097bn held by mortgage-free owner-occupiers, mostly aged over 40.
Backing up these findings, Countrywide’s latest research found that only one-quarter of the UK’s housing wealth is now held by under-35s compared with just over one third 10 years ago. While ownership among the young decreased, those that owned homes benefited from an average 68% rise in property values.
These figures reinforce how far the market is skewed disproportionately in favour of the 40-plus generation. Johnny Morris, Countrywide’s head of residential research, said: “Significant wealth is held by those older than 40, who bought when housing was relatively cheap.” He added that younger people were dealing with ‘higher house prices relative to income, low inflation and the hurdle of saving for much larger deposit while paying high rental costs’. He acknowledged that Help to Buy and other government initiatives were encouraging but weren’t sufficient to ‘reverse these tenure shifts in the market’ and ‘fundamentally we need to build a lot more homes’.
I certainly agree with that sentiment, but as I’ve argued in previous blogs, building new homes is just part of it. Too great a focus on housebuilding overlooks a potentially bigger source of supply in the form of existing homes. One-third of households have two or more spare bedrooms. Allocating housing more efficiently – encouraging elderly couples to downsize after their children leave home for instance – would free up some of these 16m or so rooms. But where’s the incentive? Last year L&G claimed that if all 3.3m over-55s looking to downsize could find suitable homes, this would unlock 18% of the country’s property market, worth £820 billion.
I have said this before but we should do much more to make the prospect of downsizing a realistic and cost effective option for over-55s. The Council of Mortgage Lenders’ Bob Pannell believes that an ageing population means the average homeowner has become less likely to move. Moreover, with prices rising fast, people are not rushing to sell up with stamp duty increasing steeply over the longer term, so we need to look at realistic incentives. While I’m not suggesting this, abolishing stamp duty could boost transactions by 8%–20%.
Much attention has been given to accelerating the build of new house, but we must also look at ways of freeing up the supply of old ones. We need some thoughtful planning that takes the changing nature of households into account.