Generation Rent – briefing paper
Key issues (from the 2014 National Centre for Social Research report, Generation Rent: Perceptions of the first-time buyer market)
- In the UK, 35% of 20-45 year olds could be defined as ‘Generation Rent’ – a group with no realistic prospect of owning their own home in the next five years.
- Deposits, income and house prices remain the largest barriers to homeownership. However, some evidence points towards improvements in the first-time buyer market, with a slight drop in the proportion who mention ‘up-front’ barriers such as deposits and getting a mortgage as being a key barrier to ownership.
- This generation’s non-homeowners are doing more than previous generations to save for a deposit. 69% of 20-45-year-old non-homeowners who would like to buy a home are cutting back on their spending to save for a deposit compared to 54% in their parents’ generation that did the same.
- Parental assistance for first-time buyers is becoming more common, but for some parents it can have negative impacts on their financial security as they dip into their own savings and retirement funds to pay for it.
- The Government’s ‘Help to Buy’ scheme seeks to make it easier for people to purchase a property by assisting with the deposit and by providing mortgage guarantees. The particular issues it targets – deposit sizes and difficulty getting a mortgage – were less likely to be perceived as a barrier than in the recent past.
- Homeownership is still a preference for most people and is associated with positive social outcomes such as ‘taking a stake in society’. However, attitudes towards renting as a lifestyle seem to have softened slightly, and the youngest participants are significantly less likely to want to own a home than the generations that preceded them.
Facts and figures (from the Generation Rent report and various Shelter reports (2014-2015)
- For those in the 20-45 age group, the biggest perceived barriers to home ownership are: 1) size of deposit needed, 2) high property prices and 3) low income.
- In 2013, the average deposit for a property transaction was 20%. This is 10% higher than it was in 2007.
- 57% on non-homeowners who would like to buy do not have the spare cash to save for a deposit.
- 71% of 20-45 year olds anticipate that the country is in danger of being divided by social and economic differences between homeowners and non-homeowners.
- Over half of 20-45 year olds polled think that Britain will become a nation of renters in the next generation.
- 29% of 20-45 year olds have no plans to get on the property ladder.
- 57% of non-homeowners are concerned they will be unable to retire if they have to rent all their life.
- 1,685,804 people were on the waiting list for social housing in 2013. 10,140 new homes were built for social rent in 2013/14.
- The proportion of household income spent on rent or mortgage for owner-occupiers is 20% on average; 30% for social renters and 40% for private renters.
- Currently, the balance of public spending between subsidising rents and building homes is 95% to 5%.
Social impacts of the housing crisis (from the IPPR’s No Place to Call Home: The Social Impacts of Housing Undersupply on Young People)
- Conclusions: For the lucky few young people with wealth behind them, housing facilitates independence, a career, relationships, a sense of community, and broader life satisfaction. But for the large majority who do not, it acts as a barrier and a block. In the worst cases, housing poses a risk to young people’s health, safety and family life.
- Housing supply has not kept pace with the number of households. On the basis of current levels of output and demographic and social trends, this imbalance is likely to worsen.
- A significant majority of young people aspire to own their home, but many are resigned to this being little more than an ever-delayed aspiration.
- The undersupply of housing is holding young people back: for many, their housing negatively affects their ability to reach their own meaningful life goals.
- Housing is affecting relationships: for some, this means delaying having children until they can secure more stable housing. For those looking to move on from their adolescent or student lifestyle it may be harder to form partner relationships, socialise or connect with family.
- Young people feel a lack of safety and security: high housing costs lead to a greater reliance on debt to meet housing costs, while an inaccessible housing market leads people to rely on family relationships for support, which not all young people have at their disposal.
- Community cohesion is suffering as a result: those renting their home feel a much weaker sense of community belonging. Those who own their home not only feel more connected to their community but are also more willing and able to contribute.
- Recommendations: A planning system that builds consent for new homes: leaves more scope for local residents to directly shape the terms of proposed developments. and is rooted in a commitment to high-quality homes supported by the necessary services and infrastructure to make neighbourhoods flourish.
- To create further scope for meeting long-term housing demand, consideration should be given to reclassifying low-grade greenbelt land, while protecting areas of real natural beauty and importance, and identifying sites for strategic planning interventions that could realise the ambition for a new wave of attractive and sustainable ‘new towns’ or ‘garden cities’.
- New sources of investment to boost house-building: There is a strong case for increasing the level of capital investment in new house-building. In the short term, access to mortgage finance is a real constraint on house-building, but in the long term looser credit and first-time buyer initiatives should not be relied upon. These measures tend to simply inflate prices and leave households overexposed. Instead, the priority should be securing finance for development. There is already a growing move to unlock the potential for pension fund investment in housing, including those held by local authorities, which could be supplemented by a properly capitalised British Investment Bank.
- Pathways to sustainable homeownership for young people: In addition to measures that would help to increase overall housing output, there should also be a focus on developing pathways to sustainable homeownership for young people. This could include providing options for young people in the private rented sector to build up equity stakes through overpaying rent or to build up discounts as their tenancy extends.
The UK and Scottish Government policy responses
- The UK Government’s Help to Buy Scheme comes in two parts: 1) an equity loan part, in which buyers contribute 5% of the property price, with the Govt. loaning up to 20% of the price, with up to 75% covered by a mortgage which the buyer must take out, and 2) a mortgage guarantee part, in which buyers require a deposit of 5%, with participating mortgage lenders then receiving a government guarantee on the remainder of the value of the property.
- The Scottish Government have mirrored the Help to Buy scheme, but at a lower funding allocation (£35m for financial year 2013/14 £140m for 2014/15 and £130m for 2015/16). The scheme is only available on new build homes from participating home builders and on homes up to a maximum value of £250,000. A 5% deposit is required and the Scottish Government will likely fund between 10% and 20% of the purchase price with an equity stake, which will be repaid over the lifetime of the mortgage.
Current Labour policy on the housing shortage
- Labour has pledged to change the law to make three-year tenancies the norm instead of the six or twelve month short-term tenancies that most renters have now. This will give landlords and tenants more stability, but will still enable tenants to terminate contracts early with proper notice if they have to, just as they can now.
- Labour will make rent increases more predictable within these contracts, so that landlords and tenants negotiate their initial rent between them just as they do at the moment, and then review rents every year during the three-year tenancy. This will stop excessive rate rises out of sync with the market, and help families plan ahead and make sure landlords have a stable income.
- Labour will ban letting agents from charging fees to tenants – saving renters who enter a new tenancy an average £350 – and make sure that the fees charged by letting agents to landlords are transparent so that they know what they are paying for.
- Labour will build 200,000 homes a year in the UK by 2020. This will close the gap between the number of homes we build and the number of homes we need, as well as providing up to 230,000 jobs in construction.
- Labour will tackle empty homes in England by giving councils more power to charge higher rates of council tax on empty properties, and ensure new homes are advertised in the UK first, not overseas.