When housing systems, educational models, and values shift, every generation faces new social expectations and pressures. As a result, the millennial generation is now facing the latest reshaping of the economy and the housing market in the UK – a housing market very different to that experienced by their parents and grandparents. Today, house prices are so high that many young people must consider renting or – if they really want to buy – putting a deposit on an affordable home in an inconvenient location some distance from their ideal job, family, and friends.
Here, philanthropist James Drake compares the difficulties associated with buying a property that today’s twenty-somethings negotiate, versus the comparatively easy systems of the seventies.
‘If the previous generation, serving World War II, was the “greatest generation”, mine was “the Selfish Generation”,’ James says. ‘We faced many fewer barriers’. He highlights 10 factors that have a particularly worrying financial impact on Millennials today.
1) The Impact of Rising House Prices
James explains that in the mid-seventies, he bought a new two-bedroom flat in Howmic Court, which is a few yards from the River Thames in Richmond, London. James bought the flat for £13,000 on a salary of £2,500. Today, you wouldn’t be able to buy such a property on a salary of £25,000. In fact, an identical flat in the same block is now on the market for £430,000. It’s no surprise that millions of Millennials are resigning to live with their parents for many years before even coming close to affording a property of their own.
The Independent refers to a Resolution Foundation study, which predicts that Millennials will spend over £40,000 more on rent than their parents by the age of 30. While the Baby Boomers – those born between 1946 and 1964 – typically spent around £9,000 on rent before reaching age 30, Millennials – those born between 1981 and 1996 – will likely spend an average of £53,000 on rent before reaching age 30.
Furthermore, while almost two-thirds of Baby Boomers owned a home by age 30, only 42% of Millennials are likely to own a home at this age. The study also warns that housing costs are rising so quickly that they are likely to wipe out most, if not all, of income growth for many Millennials over future years. These huge rises in expected costs are all thanks to rising house prices, cuts in housing subsidy, and evolving tenure patterns.
2) Unfulfilled Property Demand
The Independent also reports that young people are four times more likely to downsize their homes than those who are over 55, despite being at the prime age for having families. This isn’t just due to the rising property prices. There’s also an issue of unfulfilled demand: the Resolution Foundation concludes that there are 825 homes for every 1,000 families in England, meaning that the number of shared households is ever on the rise.
Despite this unfulfilled demand, the UK is struggling to secure enough building plots to construct affordable properties in the UK. Though we need more housing supply to meet demand, many want to preserve green areas and are reluctant for builders to construct new properties near their homes. For example, this month, Cheshire residents have rejected a new housing development that would ‘destroy’ Parkgate. Over 1,200 people have signed the petition to reject the proposal. Similarly, residents in a Leicestershire village are furiously standing against plans for a large-scale housing scheme for the third time. The council previously turned down the application because building 120 homes would ‘not protect the intrinsic value, beauty and open character of this countryside location’.
The property market is hyper-localised and sensitive to changes, and the increase in supply from building more houses in one area would impact the prices of existing properties nearby (and the future price growth of existing properties). Moreover, the Guardian explains that developers sometimes reduce or altogether avoid provision for affordable homes if plans are likely to drop a scheme’s profit margin below 20%. The big-budget homes are most profitable for developers. As a result, there is less incentive for building new, affordable houses across the UK.
3) Stringent Borrowing Measures
While many Millennials hope to purchase their own properties, this often isn’t a financially viable option. Not only do many young people lack the funds to secure a deposit for a house, but they also often struggle to secure a mortgage due to stringent borrowing measures. Showhouse concludes that 75% of UK Millennial renters don’t find a place on the property ladder because of financial reasons. A further report from the Resolution Foundation suggests that a third of Millennials will never own their own homes.
4) Many Boomers Purchase Properties as ‘Investments’
In the UK, wealthier home-buyers are more likely to purchase residential properties as ‘investments’ than homes. With risky returns on stocks (especially UK equities) and dismal savings rates, investors turn to UK property for a decent return. As a result, the boomer generation has built up portfolios of residential properties earning large rental returns, especially since the financial crash of 2008. Unfortunately, this reduces the number of properties available to young people. While London Loves Business concludes that Baby Boomers own 36p in every £1 of UK household wealth, the Daily Mail has found that, out of the 5.2 million Brits who own multiple properties, 50% are Baby Boomers and 25% are Generation X home-owners. Meanwhile, Millennials can barely afford starter homes.
Property is one of the few ways investors can access cheap leverage on their investments via BTL mortgages. While you couldn’t secure a £300,000 loan from a bank to invest in stocks and shares, securing a loan for 75% of an investment property’s value is comparably achievable. Buying property with borrowed money and reinvesting the profits is a well-established fast-track to building wealth, but this can have a devastating impact on younger generations looking to close deals on affordable properties.
5) Stamp Duty Holidays Don’t Benefit Ordinary, Hard-Working Millennials
Government incentives such as stamp duty holidays inflate property prices by stimulating demand. However, young people might be better served by a sharp house price downward correction, although not by a crash. While such incentives as stamp duty holidays encourage Boomers to finance their children’s properties, Millennials without this support from parents do not benefit from these schemes. The i highlights that cutting stamp duty for those with large amounts of cash fails to help those who are stuck in rent traps or those who have been furloughed at the hands of coronavirus, reinforcing the damaging inequality in the housing market.
6) Wage Stagnation
Some may argue that young people being unable to afford houses is just a symptom of wage stagnation and property price increase. Between the fifties and early noughties, the average UK property cost around five times the average salary in the UK. Now, the average property costs around eight times the average salary. While graduate salaries have fallen compared with inflation in recent years, UK wage growth hasn’t exceeded inflation since 2010. This means that earnings have stagnated or fallen in “real terms”. Between April 2010 and April 2018, the median pre-tax weekly earnings of an employee in the UK fell by around 3% in real terms.
7) Inadequate Tenants’ Rights
European countries with a larger proportion of renters than the UK have more rights and security in place for tenants, making rented accommodation more appealing. Not only do these rights attract tenants and therefore reduce demand for affordable homes on the property market, but the wider acceptance for renting also dissolves the social stigma associated with life-long renting that is all too prevalent in the UK. Despite this stigma, the Independent has found that UK tenants pay almost double the European average in rent, even compared to countries that share similar wage levels, such as the Netherlands and Germany. Instead of questioning why tenants aren’t making their way onto the property ladder, we should be questioning the validity of the negative associations with renting.
8) The Impact of Student Debt
Aside from the lower house prices of the time, James explains that he was able to raise a 10% deposit for his Twickenham flat in the seventies because he didn’t have a crippling loan to pay off after graduating from the University of Leeds. Though there is an effective loan repayment system* in place for today’s graduates, student debts can take a huge chunk out of young people’s incomes when they’re saving for a deposit on a property and a subsequent mortgage – especially if they’re looking for properties in London. Students can expect to give up 9% of their income above the repayment threshold of £26,575 to repay their student loan. But a £26/27,000 salary won’t cover the bills for a home and mortgage in London, let alone while accommodating student loan repayments.
Buying in London is now unaffordable for all but the elite: young people face the uncomfortable reality that they need to move somewhere they can afford to live, sacrificing the London-centric job prospects that offer the best opportunities in many industries. Otherwise, Millennials must accept that, until they land a £100,000 salary, being content with renting is something they must come to terms with.
*Although lenders don’t take student loans into account when assessing mortgage applications, student loan repayments and high-interest rates can eat away at savings, especially for graduates who have completed both undergraduate and postgraduate degrees to qualify for particular roles.
9) The Impact of COVID-19
Though factors are already set against Millennials when it comes to securing a spot on the property ladder, COVID-19 has only complicated matters further. As James explains, previous generations didn’t have to face a pandemic that impaired job prospects and economic growth for the next decade.
Already, COVID-19 has wildly redefined our working lives, particularly in terms of the newfound acceptance for remote culture. While cities have closed their doors on corporate life in favour of working from home, it’s no surprise that thousands of people are flocking to remote areas to work in beachfront locales and countryside havens. While this shift in demand means that city home prices are dropping, homebuyers can expect to see surges in rural home prices, making highly desirable properties yet more unaffordable. In particular, the Guardian has covered the shift in Brits relocating from cities to the UK’s countryside spots.
The UK residential property market is too-big-to-fail. Failure would be catastrophic for homeowners, ordinary people’s investments, pensions, lenders, financial institutions, and foreign investment in the UK. Each of these relies on the stability and growth of the UK property market. A property price crash at the hands of the pandemic would cripple the UK economy and put millions of homeowners on the brink. To prevent this from happening, house prices are only going to rise further, making properties even more inaccessible for young people.
10) The Impact of Climate Change
Aside from COVID-19, climate change is one of the most pressing matters of our time. James explains that during the seventies, climate change wasn’t as widely noted as a major issue, though air pollution was already posing a serious threat to the planet. Though particulate matter, ammonia, nitrogen oxide, sulphur dioxide, and non-methane volatile organic compound levels have reduced substantially since the 1970s, the government has only implemented key steps to improve air quality relatively recently, leaving the difficulties and costs associated with shifting practices on the shoulders of Millennials and Generation Z.
Now, UKGBC concludes that the housing industry contributes 40% of the UK’s carbon emissions. This means that, of all the sectors, the housing market is one of the biggest contributors when it comes to carbon emissions. While the UK government has pledged to achieve net-zero carbon emissions by 2050, the housing market is under intense pressure to implement green solutions. But these green solutions are likely to come with heavy costs for developers and, as a result, homebuyers. As developers build new homes using eco-friendly technologies, such as source heat pumps, solar panels, and triple glazing, house prices are likely to soar yet further. Though the eco-friendly evolution of house construction is essential, the home-buying process may well become even more difficult for Millennials and Generation Z.
Next Steps from the Government
The Independent reports that the government is planning steps to ease home-buying difficulty for Millennials and the upcoming Generation Z, who will soon be looking to purchase homes, too. On 6th October, Boris Johnson announced a plan to implement a 5% mortgage deposit option for first-time buyers post-pandemic. This plan is set to create a further two-million owner-occupiers and, as Boris states, ‘fix our broken housing market’. While there is currently a huge shortage of affordable homes, we can only hope that solutions will come into play as we rebuild our economy.
About James Drake
James Drake is the philanthropist behind various sports science and music organisations in the UK. He is the founder of the Drake Foundation, a non-profit organisation that funds key research into the link between concussions and neurodegenerative disease. The Drake Foundation has provided over £2 million to uncover vital medical findings and reduce the impact of head injuries obtained in sporting practices.
James is also the founder of the Future Science Group (FSG), a progressive imprint that publishes eBooks and 35 influential medical journals, providing a knowledge hub for researchers, clinicians, and decision-makers.
On top of this, James is the founder of the Drake Calleja Trust, which offers scholarships to budding musicians who need financial support to launch their musical careers.
Read more about James Drake’s philanthropic efforts at www.jamesdrake.com.