It’s common knowledge that it’s harder to become a homeowner, but the extent of the impact on young households is now revealed in the latest UK Housing Review, out today.
It shows a remarkable difference between age groups. Ownership among those aged 65 and over is actually still increasing, while among 55-64 year olds it is stable. But among younger people, it has declined markedly in the last ten years: for example home ownership among the key 25-34 age group has gone down by one third.
Looked at from the viewpoint of whether or not owners have mortgages, the proportion of households who are outright owners is stable at 32%, while the proportion who are buying with a mortgage – at a high point of 42% in 1998 – is now down to only 36% and still falling.
There are two major problems about this trend. One is obviously the frustration for potential homebuyers now obliged to rent. They are forced to spend in an expensive and insecure rental market that doesn’t provide what they want and consumes much of the income they might otherwise use to save for a deposit. Except for those able to get substantial help from the bank of mum and dad, many of these reluctant renters are stuck
The wider problem is about investment in housing. Private landlords now own a very significant 18% of the housing stock, but hardly any of the rental income generated is being used to finance new homes. Most new acquisitions are of houses that would otherwise be available for homebuyers. Landlords can use their access to cheaper, interest-only mortgages that are largely unavailable to owner-occupiers.
The government seems to be perplexed by the massive gap between housing output (98,000 houses started last year) and demand (household numbers growing by 232,000 per year, let alone the backlog of current needs). But of the three main housing sectors, only private renting is buoyant and it’s the one sector with virtually no recent history of financing new construction.
Cuts in grants to social housing mean that the long-run output of the Affordable Homes Programme will be 60% lower per year than its predecessor, which ended in April 2011. So, although the social sector is well-placed to take up the slack in the construction industry, it can’t do so.
Yet it’s also pretty obvious that the trickle of new homebuyers is not about to turn into a flood, even as the economy slowly picks up. Tighter mortgage rules, lenders’ reluctance, flat income growth and job insecurity all conspire to stop people from buying who want to do so.
Despite the Review’s ‘Affordability Index’ showing that mortgage costs in relation to incomes have fallen back sharply since they peaked in 2007, insufficient numbers are able to get the mortgages that their incomes would sustain.
That the market has revived at all is more down to the Bank of England’s Funding for Lending scheme than to housing policy. The Department for Communities and Local Government’s flagship schemes, FirstBuy and NewBuy, have clocked up only 8,500 sales between them, which means there is a long way to go before they help the promised 100,000 new owners.
Right to Buy, which of course helps people who already have a secure home, is increasing but is still far below its pre-credit crunch level. The ambition that it will finance ‘one-for-one’ replacement with new rented homes doesn’t reappear in the recent DCLG press release on sales.
The private rented sector continues to grow by over 200,000 dwellings per year but new buy-to-let mortgages account for less than a third of this, which suggests that many landlords have been forced to let a house they would prefer to sell but can’t. So in many cases we have reluctant landlords letting to reluctant tenants – hardly a recipe for all-round satisfaction.
All of the issue outlined above have led to CIH launching a new campaign, called ‘Uncovering the true cost of housing’, that aims to define the problems that make up our housing crisis and help to come up with some solutions.
Government initiatives to date – while welcome – have been limited in their impact. With almost daily demands for a big stimulus for the construction industry coupled with discussion of the unwilling ‘generation rent’, we need to see much more concrete action on the ground.
