Generation Rent – How did we get here?
14 Sep 2015 | COMMENTS: 0 | Author: Liberty Howard | News
It seems as though every day, there’s a new report or article detailing the struggle young people have to get – and stay – on the property ladder.
With the average house price over £200,000 and mortgage lenders becoming more selective over who they’ll lend to and how much they’ll lend them, it can seem all but impossible for a first-time buyer to purchase a home.
To make matters worse, private sector rents are currently rising at their highest ever rate. Competition for rental properties – particularly in the capital – is fierce. The average rent currently stands at almost £1,000 per property, and with some landlords viewing their properties less as a place for people to live, and more as a savings account with a particularly healthy interest rate, there are many tenants living in squalor for these inflated prices – with a record number of under 35’s now in house shares, or still living with their parents.
Although the Government is trying to help with affordable housing, new Help-to-Buy ISAs, and extending Right to Buy to over a million more people as part of their pre-election pledges, these schemes rarely make any difference to the state of the market, and often come under criticism for doing more harm than good.
If things continue as they are, we’re going to begin to see property wealth in the hands of the few – whilst the rest of us pay them extortionate rent every month just to keep a roof over our heads. Although this could be good news for the bank balances of those that already own property, the rest of us may find ourselves renting for life: a situation that can be expensive and precarious.
So how exactly did we get here?
Baby-boomers had it better
A baby boomer is technically anyone born between 1946 and 1964. Also known as the “golden generation”, they were buying property in an extremely stable housing market: According to Nationwide, the average house price in 1952 was a mere £1891. Although this sounds like a steal, with annual salary at an average of £670 in the same year, a house was only just affordable. However, whilst average salary is £26,000 in 2015, house prices have risen disproportionally in the same time period: with the most recent average house price reported at around £205,000 – almost 8 times the average salary. This is making first-time home ownership a pipedream for many of Generation X and millennials, who can’t save a large enough deposit: let alone obtain a mortgage.
So baby-boomers were able to make huge financial gains on their properties without actually having to outlay any money to add value – with profits rising even faster if they did. Add to this the fact that the baby-boomer generation has lived longer and are therefore staying in their large, family homes for longer than in previous years, and it’s easy to see how the amount of affordable housing for first-time buyers or young families could be falling fast.
To put house price rises in perspective: last year, Newsnight reported that houses in Mitcham that were sold in the 30’s for between £315 and £530 (£18,000 and £30,000 today, with inflation) were selling for as much as £335,000 at the time.
All most baby-boomers have actually done is buy a home, and then reap the benefits of the rising prices: so there’s no real blame to be placed with them. But with property seen as a quick, easy and guaranteed investment, it began to be viewed as a commodity: in turn, raising prices even faster and further.
With property prices so high, it can seem like a miracle that competition in the market is still fierce: with properties in the capital sometimes going for well over the asking price, before anyone has even viewed them. Who can afford to buy properties at the prices they’re going for?
A lot of the time, the answer is “Buy-to-Let landlords”. Landlords have come under fire recently, but they’ve always been around in one guise or another. The problem now is the sheer volume of people that own a second (or third… or fourth…) property that they rent out, meaning the market is more competitive than ever for first-time buyers. It’s no coincidence that house prices started rising most astronomically in the late 90’s: in line with assured short hold tenancies being introduced in 1997. This new type of tenancy made it easier to evict tenants (both for valid and invalid reasons) and raise rents: meaning owning a rental property became a better source of income, and in turn, buy-to-let mortgages became easier to obtain: and in fact, were marketed as a great way to earn a nest-egg in the 90’s, almost up until the financial crisis of 2007, when prices began to flat line – although not fall.
Not enough housing?
We like to put a lot of emphasis on a lack of new builds as a reason for the housing crisis, but is this true? Supply and demand in the housing market is now so out of balance that even if thousands of new houses were built and put up for sale overnight, the impact on property prices would be minimal. And going back to the buy-to-let problem: many of these new builds would probably be snapped up by prospective landlords as opposed to first-time buyers anyway.
Since so many BTL landlords began snapping houses up in the late 90’s, new developments usually cater to this demand: producing flats that can be easily leased to young renters, as opposed to creating more affordable homes for first-time buyers. The cumulative effect of this is that the amount of available, affordable housing has dropped even further, and prices continue to rise as a result.
As rents rise with demand too, it’s become ever-harder for renters to save for a deposit: And with millions of young people now in this situation, Generation Rent is born. It’s unfair that so many are struggling to get on the property ladder: or even keep a secure roof over their heads if they can’t afford the rising rent prices, and there are there are ways the Government could step in and help, including introducing rent controls, or viable help-to-buy and affordable housing schemes.
But the first – and hardest – step is getting the voice of this generation heard. There’s lots of great campaigning going on at the moment, including the fantastic official Generation Rent campaign, which you can get involved with here.