The LPDF take a look at problems in the market and discuss what solutions might be available now or in the future that might help to address the issue.
As the country moves into a period of healing following the 2020 pandemic, early positivity in the market has seen house prices swell rising steadily since May 2020. Hidden within the optimism of the housing market are messages of concern for the younger generation. Concerns that whilst the housing market is buoyant, securing that first home remains out of reach for many. It is perhaps unsurprising that whilst nine in ten young adults still aspire to home ownership, only 30% believe that home ownership is achievable.
When the average house price in the UK shoots up to £283,000 in May 2022 (up 11.9% on 2021), it is understandable why the dream of home ownership for the young feels like it is slipping away. Strong growth in house prices has not been mirrored in growth in earnings over the past ten years (presently annual rates of 0.8% earnings against 4.7% house prices).
When coupled with rising inflation, it is perhaps easy to see why it would be difficult for the younger generation to look to this average figure, particularly at a time when house prices are 9.7 times the average earnings and to think it’s achievable.
To some, simply ensuring a suitable deposit can be raised is a significant challenge.
At a time when rents have risen by 20% in the last 7 years, research from the Joseph Rowntree Foundation has observed a growth of in-work poverty, which is felt severely by four in five households in private rented accommodation. If the position was not bad enough already for the younger generations, the 2020 pandemic has only served to widen the gulf, as this cohort has less resilience to income shocks.
The consequences are real. As highlighted by Shelter following their 2017 survey around 1 in 5 adults regarded housing issues as having negatively impacted on their mental health in the past five years, including long-term stress, anxiety and depression.
The housing emergency involves us all, from those who will struggle to get onto the first rung of the housing ladder, those in affordable housing need, or those in need of specialist care.
For those millennials looking to enter the housing market, the problem is particularly acute. Saving a deposit remains far beyond the reach of many millennials or young savers.
Whilst an issue of some complexity, what is clear is that shortfalls in housing delivery have led to an imbalance in the supply and demand of housing. This has been observed not just in the stock of private housing, but in affordable housing too. Not only is it estimated that only 35% of the total affordable housing needed is being delivered, but supply lost is not being replaced.
Recent data from ONS suggests that over the past 10 years there have been around 107,000 homes sold under the Government’s right to buy scheme, replaced with around 42,000 homes
The lack of suitable housing has been compounded by other factors, including the significant increase in second homes, up 50% between 2010 and 2020. The consequence of this is that we see that 1 in 6 born between 1946 and 1964 owning extra property whilst the younger generation struggle to envisage owing any property in their lifetime. This has been a contributing factor in the stagnation of wealth for those under 40 for the past 8 years, who have seen growth of only 9%, compared to the 65+ group, who have experienced a 32% increase over the same period. These factors are contributing to a shortage of housing for young professionals and families to move into, however the housing stock is also squeezed from the other end.
As some older generations struggle to find the right accommodation to downsize into due to lack of new senior living accommodation, we see the marked under-occupation of the housing stock, yet another factor suppressing the availability of family housing.
The implications of this social change are already being felt. As observed through trends in population growth, the impact of unsustainable hikes in house prices has had a negative impact on fertility rates. The rise in the renting generation or those younger persons still living at home has left the generation without the stability needed to start families. And this factor has in part led to a reduction in fertility rates, a trend that is expected to worsen in the future as the factors that have caused them, continue to endure.
The recently published 2021 Census tells us that housing growth in the last 10 years has been lower than those forecasts currently used to determine local housing need, pointing to a measure of further suppressed household formation. This has been observed in data collected through the English Housing Survey where the effect has been more pronounced in the private and social rental sector.
As we move into a period of hopeful emergence from Covid restrictions, the crisis deepens once again, as rising inflation adds further pressure to already struggling households.
There is a clear imperative for the country to build more homes which will assist in easing housing affordability, but to assist those younger generations, there needs to be a renewed focus on the delivery of all housing in particular affordable housing products, which needs to be delivered on a vast and ambitious scale.
Original Publication Date: Aug 22