The government needs to get housing right this time
London houses have never been less affordable than they are now.
The average Londoner has to cough up 14.5 times their annual salary if they want to buy a home in the capital.
That’s not the kind of money anyone just has lying around.
Although the situation is particularly dire in London, it is of course a nation-wide problem. In places like Cambridge, Oxford and Bournemouth houses cost more than ten times people’s yearly pay as well.
Especially young people find it hard to afford their own place. Many can’t afford their own home without help from their parents. A lot of them can’t afford to buy full stop.
Chancellor Philip Hammond appeared to address this problem in his Budget, though not everyone is convinced his measures will sort effect.
Fixing the housing crisis could go a long way in reducing intergenerational inequality. It’s an important vote winner too.
If the government can’t help young people on the housing ladder, it’ll be very difficult for the Conservatives to retain their power.
It’s no secret that there’s a bit of a disconnect between earnings and house prices in Britain.
In the 1960s a fireman could buy a home at three times his annual salary. Today that very ordinary property could be worth three times a surgeon’s salary.
This, in a nutshell, is why it’s so hard for the millennial generation of people aged 18-34 to get a foot on the housing ladder.
The gap between the average wage and the average house price is huge. Most young people can’t afford to buy a home, which is why they’re dubbed “Generation Rent”.
It’s leading to some poignant figures.
The number of homeowners among people under 45 has dropped from 4.46m in 2010 to 3.56m in 2015. In England homeownership has been at its lowest level in three decades.
Crucially, the number of first-time buyers fell by a third between 1995 and 2015. The average age of first-time buyers has gone up in this period from 30 to 33.
The lack of affordable housing, the recession and stricter criteria to qualify for a mortgage all play their part in this decline.
This is significant, not just because young people these days are in a worse position than their parents, but because of the importance of first-time buyers to the housing market.
“First-time buyers are the bedrock of the housing market,” argues Strategic Intelligence editor David Stevenson.
“There’s always a natural stream of sellers for a wide range of reasons. Without new entrants, the property scene would completely freeze up.”
Unsurprisingly the only way most young people can still afford their own home is if they can borrow from their parents.
The Bank of Mum and Dad will lend a whopping £6.7bn to their children this year so they can purchase their own place. More than 298,000 deposits are (partly) paid by parents.
Last year parents shelled out £5bn which shows the problem is getting worse, not better.
Budget will perpetuate situation
Chancellor Philip Hammond rightly identified where he needs to win over young voters in his Budget.
“Philip Hammond understands one of the core tenets of conservatism: a property-owning democracy is a necessary bulwark against socialism,” Sebastian Payne writes in the Financial Times.
Hammond wants to build 300,000 new homes a year. He probably hopes this will spark a new generation of homeowners.
And, of course, he abolished stamp duty for first-time buyers on properties under £300,000.
That all sounds wonderful. At the same time you can’t help feel a little bit sceptical when governments boast about how many houses they’re going to build.
If governments always built the houses they said they’d build, we’d arguably not have a housing crisis to begin with! For some reason, their housebuilding targets always seem to be missed.
Hammond’s big gesture to first-time buyers, abolishing stamp duty, could backfire too.
Past stamp duty reforms haven’t been effective in getting more young people on the housing ladder. It could even make it harder for them as the tax break may push up property prices, the Office for Budget Responsibility warns.
In the end the only thing that will really help young people in this respect is buying more and cheaper houses.
“If the government really wants more first-time buyers, the best way of achieving this is to hit housebuilding targets and let prices drop back, rather than providing gimmicks like stamp duty cuts and encouraging more FTB borrowing,” says David Stevenson.
“Let’s see if the Budget’s ambitious home construction aims are realised this time.”
Although the Chancellor understands that fixing the housing crisis will be a key vote winner, we’ll have to see if his measures are enough to help young people.
For the time being, the millennial generation still looks like it’s going to miss out. This could have political consequences.
The Conservatives already had a taste of this in the previous election. Voters under 40 overwhelmingly favoured Labour. The gap between Labour and Tory was over 40 percentage points for voters under 30.
This trend is unlikely to buckle unless more is done for the younger generations. Voters under 45 already trust Labour more with the economy than the Tories, a recent survey found.
Addressing intergenerational inequality should become a key priority for this government if it wants to have a shot with the millennials and the next generation of voters.
It could start by finally making sure its housebuilding targets are met.