Home Affront: housing across the generations

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Executive summary

Many disparities exist between the generations but none is more acutely felt than the question of housing. Across all income groups and all parts of the country, young people believe they are on the receiving end of a poorer housing experience than their parents and grandparents. Moreover, this angst transcends the generations: both older family members and the broader population flag housing as one of their key concerns for young people in the UK today.

In this, the 9th report of our Intergenerational Commission, we take on this hugely important topic. We compare the housing outcomes achieved by different generations over the life course and assess the extent to which intergenerational inequalities exist when it comes to security, to affordability and to quality. We explore how the housing experience of each generation has been determined by demographics, policy and the market alike. Finally we look to the future, recognising that our housing tenure by mid-life can have a significant bearing on our living standards not just in the here and now but also over the entire span of our lives. So what do we find when we take a long, hard look at housing across the generations?

Today’s thirty year olds are only half as likely to own their home as the baby boomers

Britain may traditionally be viewed as a nation of home owners but a look at the data shows that the share of families who own their home has been falling since 2003. This downward trend has not been felt equally across the generations: home ownership rates of older birth cohorts have remained steady at high levels while younger generations have seen much lower levels of, and slower increases in, ownership than their predecessors. As a result, today’s families headed by 30 year olds are only half as likely to own their home as their parents were at the same age.

Demographic changes such as longer education, later coupling and later child bearing form part of our account as to why younger people’s home ownership rates have fallen so sharply over time. Moreover, we note that the home ownership rates of older generations received a boost in the 1980s and 1990s as a result of Right to Buy (and the decision not to replenish the social housing stock means fewer properties available for young people to rent in this sector today).

Taken together, however, preferences and policies like Right to Buy provide only part of the explanation as to why home ownership rates have declined over time. Crucially, we show how barriers to entry have increased dramatically, not least from rising house prices. With the average young family today having to save for 19 years to accumulate enough for a typical deposit compared to just 3 years a generation ago, it is small wonder that home ownership rates have tumbled.

Young people today are four times as likely to rent privately than they were two generations ago

Falling home ownership and a shrinking social rented sector have together conspired to increase the ranks of private renters over time. As well as functioning as the residual tenure for those who cannot or do not want to live in these two other main types, we show that policy decisions about rents, notice periods and lending have also driven the growth of the sector. As a result, four out of ten 30 year olds live in private rented accommodation today in contrast to one in ten 50 years back, giving rise to the term ‘generation rent’.

While usually an acceptable tenure when footloose and fancy free, private renting can become far less desirable over the life course if it brings with it considerable insecurity. We show that the low security of tenure which is a hallmark of private renting today – and which critically makes it so much less attractive to families as they age and have children – is a historical development. Tenants have much stronger rights in many other countries and indeed had more security in the UK before 1988, albeit not without some associated problems.

Private renting is not just the least secure form of housing, however, but also the tenure with the worst record for housing quality. We show that private renters have historically lived in poorer conditions than those in other tenure types, and that it is the oldest tenants today who are most likely to live in non-decent homes. But with so many young people renting privately today, the sheer size of this group living in the worst quality tenure should give policy makers pause for thought.

Families often house their adult children – but increasingly not their parents

For all the talk of the ‘boomerang-ers’ we see that adult children living with parents is a common phenomenon over time. That said, the proportion of children who live with their parents beyond their majority does fluctuate, in part in response to economic conditions (we saw a rise in rates when unemployment increased at the start of the 1980s, for example) and in part as behaviours change (the increased number of young adults in higher education has had a clear effect on rates). Whether this way of living is a choice or a necessity, we note that close to half of today’s 25 year olds who are single and without children currently reside in the parental home.

From an intergenerational point of view a far more striking development is that families are much less likely to house their parents than they have in the past. While this no doubt speaks to welcome improvements in longevity and better health into older age, we might also speculate that changing social norms – likely including the dramatic rise in female employment rates over the long term – provide another part of the explanation.

Generation on generation, housing costs have absorbed a larger share of family income with significant living standards effects

The average share of income that families spend on housing has trebled over the last 50 years. The last half a century has seen rising housing costs increasingly acting as a drag on living standards, leaving many – including the old but especially the young – facing an affordability crisis today.  On average millennials spend 23 per cent of their income on housing compared to the 17 per cent baby boomers spent at the same age, and the 8 per cent of the silent generation.

Growing affordability differentials between the tenure types is a key driver of these trends. Affordability has always varied between tenures, but the gap has increased significantly. Throughout the 1960s and 1970s, mortgaged owners spent around 5 per cent of their income on housing costs, renters writ large around 10 per cent. Today, that wedge has grown: while mortgaged owners spent around 12 per cent of their income on their housing costs in 2016, private renters were paying three times as much (36 per cent) with massive implications for the intergenerational experience.

There are some winners when looking at housing affordability across the generations however. Today’s millennials who, by hook or by crook, have purchased a home early in their lives have lower interest costs when measured as a share of income than mortgaged owners in the previous two generations at the same age. This is largely driven by record low interest rates alongside the fact that barriers to entry increasingly make home ownership a better-off young person’s game. But the proportion of income being spent on capital repayments has risen relentlessly from generation to generation. This, coupled with the possibility that the near-zero interest rate environment will not endure, should temper our assessment of home owning millennials as the lucky few.

Housing stock quality has improved, but the young are making compromises on space and commuting

Housing costs may have risen as a share of income over time but isn’t this simply because we get more for our money? In many respects this may be true: mass slums, outside toilets and inadequate running water are thankfully things of the past (for most). But while rising housing affordability has occurred alongside significant improvements in housing stock for older generations over the course of their lives, today’s young people are being squeezed literally as well as financially. Millennial-headed households are more likely than previous generations to live in overcrowded conditions for example, and when we look at the distribution of square meterage we see today’s under-45s have been net losers in the space stakes compared to previous cohorts, while over-45s are net gainers.

Younger people today appear to be compromising not just on housing quality but also on quality of life. When we look at travel to work times we note that millennials have longer commutes than older generations did at the same age. What may look like only small increases in the travel on a daily basis add up over time: if the current differences we observe between the average commuting times of each generation were to endure, we estimate that millennials will spend 64 hours (close to three full days) more commuting in the year they turn 40 than their parents did at the same age.

Even in a best-case scenario millennials will not achieve the same home ownership levels the baby boomers enjoy

Throughout this report we note that tenure is often (although not always) the critical determinant of the housing outcomes we can achieve. While there is no ‘right’ level of home ownership, we recognise that this remains the preferred tenure of most in the UK, and has manifold advantages beyond the simple provision of housing.

Given this, we end this report with an examination of the ownership prospects of young people today. While we expect home ownership to pick up in the next few years as we move away from the stresses of the financial crisis, there is significant uncertainty about the scale of any recovery. Drawing on data from 1961 onwards we construct a model that explains how prices, incomes, credit and supply have conspired at different points in time to produce different home ownership levels, and use this to produce upper and lower estimates of the future home ownership rates of millennials.

We find that if the underlying conditions that prevailed in the decade with the strongest home ownership growth (1981-1991) were replicated, the share of young people set to ultimately own their homes would reach similar levels to generation X by the age of 45 but remain around 6  percentage points lower than that of the baby boomers (our ‘optimistic’ scenario). There are downsides even to this rosy of account however: deferred home ownership will increase the likelihood of living in rented accommodation when raising children for example, while paying off a mortgage later in life could constrain other forms of saving.

Conversely, if the experience of the poorest performing home ownership decade (2002-2012) were to be repeated we estimate that less than half of millennials will buy a home before the age of 45 compared to over 70 per cent of baby boomers who had done so by that age (our ‘pessimistic’ picture). Such a scenario could have wide ranging consequences politically (with renting as the majority tenure, could radical reform of the private rented sector be on the cards?) and financially (increasing the amount spent on housing over the entire life course as well as hindering wealth accumulation).

That all said, an open question remains as to what could happen to younger cohorts’ home ownership rates as older generations age and die. Will this wealth be consumed during later life or absorbed by social care costs? Or could it be bequeathed and thereby resolve the housing issue for some families (albeit perhaps at a point in the life course when the beneficiaries are no longer raising children)? In future analysis for the Intergenerational Commission we will look at the question of the timing and distribution of inheritance in detail.

Housing is a majoritarian concern – but it is young people who are at the sharp end of the housing crisis

For better or for worse, the big housing trends of the last half a century – tenure change, rising costs, rising quality – affect us all, but the impact of each has fallen on the different generations in very different ways. For many older people affordability increases earlier in their lives went hand in hand with improved security (especially rising home ownership) as well as vast improvements in the housing stock. In contrast, many of today’s young people are getting less for their money whether we look at their housing experience in terms of space, security or quality of life.

We should not be without hope, however. Throughout this examination of the intergenerational housing experience we have seen time and again that policy matters. Just what history – and other countries – can teach us about what we could do to address the housing catastrophe of the last fifty years will be a topic we will return to once again in the final months of our Intergenerational Commission.