The housing crisis could be putting individuals between a rock and a hard place. Arguably, one of the biggest concerns is that both renting and buying come with a set of significant problems, leaving individuals lost between two potentially below-average options.
For buyers, the average price of a property reached a record high of £300,000 last week. For renters, the market is bleak enough to warrant entire blogs being dedicated to its horrors. The government’s recent white paper, which promised more security to renters, admitted that the housing market is “broken.” (1)
How bad is the problem?
As the graph below shows, historically, the number of individuals who are home owners has decreased substantially. Younger generations, in particular, have a lower chance of calling themselves homeowners; research shows that an average 30-year-old is 30% less likely to own a home than a 30-year-old 15 years ago. (2)
The graph below highlights the dramatic drop in home-ownership, which could allow us to assume a consequential rise in renting.
(Source: 3 and 2)
The London-based think-tank, Resolution Foundation, warned that within the next ten years, under-35’s will face the risk of becoming life-time renters. 9 out of 10 under 35’s in the UK earning an average income won’t be able to buy their own home within the decade. (4)
It’s likely that the difficulty of owning your own home has led to a high demand and low supply of good, affordable rental units. And so, renters find themselves in a limbo between spending a lump sum of their income on 6-12 month rental contracts, (5) but unable to escape the cycle because they can’t save up for a deposit. Take for example Emma Percy, who, according to the BBC, has moved with her husband and three children 10 times in the past 12 years, “because of short contracts, rent increases and bad conditions of the rental properties.” (6)
However, there doesn’t seem to be much hope for individuals in her circumstance to escape the cycle of renting. Research shows that house prices have soared by 151% since 1996, though earnings have only risen by a quarter as much. As a result, it would now take 22 years for a modest income household to save up for a house deposit now, compared the 3 years of the mid-1990’s.
(Source: 2 and 7)
A distant dream
For many, the prospect of buying or renting a safe, secure place of your own is “a distant dream.” (8) The root cause, according to Sajid Javid, is that for too long, Britain simply hasn’t built enough homes. In 1980, the number of homes built was 251,820, and in 2014, it was 152,440 (3). That equates to a 39% decrease, which, when paired with a population increase of 13.8% between 1980 and 2013, explains the correlation between supply and demand. (9)
(Source: 3)
What will change look like?
It’s likely that this limbo will create a generation of nomads. Individuals will constantly worry about where to go next due to short contracts, but be unable to escape the cycle of renting due to house prices.
The capital in particular, is not only pricing out young adults, but families, too. London house prices rose by 203% between January 2002 and January 2017, compelling individuals to move to cheaper, slightly less connected parts of the country. (10)
Millennials have developed a reputation of transience; of not really owning anything. But the data highlights the fact that this isn’t particularly a behaviour of choice, and, with the state of the rental market, it’s not a particularly happy solution either.
Written by Jenna Kamal
Sources
- https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/590463/Fixing_our_broken_housing_market_-_accessible_version.pdf
- https://www.theguardian.com/society/2016/feb/13/under-35s-in-the-uk-face-becoming-permanent-renters-warns-thinktank
- http://visual.ons.gov.uk/uk-perspectives-2016-housing-and-home-ownership-in-the-uk/
- http://www.independent.co.uk/news/uk/home-news/young-poor-35-permanent-renters-a6872031.html
- http://www.which.co.uk/money/investing/how-investing-works/guides/asset-classes-explained/commercial-property-investment-explained
- http://www.bbc.co.uk/news/business-37921976
- https://www.theguardian.com/business/2016/nov/20/britains-housing-crisis-must-be-tackled-now
- https://www.gov.uk/government/speeches/housing-white-paper-statement
- http://webarchive.nationalarchives.gov.uk/20160105160709/http://www.ons.gov.uk/ons/rel/pop-estimate/population-estimates-for-uk–england-and-wales–scotland-and-northern-ireland/2013/sty-population-changes.html
- https://www.theguardian.com/cities/2016/feb/12/rootless-ruled-by-landlord-class-future-young-adults-cities-home-ownership
Disclaimer and Legals
Property Moose does not provide any advice in relation to investments and you must rely on your own due diligence before investing. Please remember that property prices can go down as well as up and that all figures, rates and yields are projections only and should not be relied on. If in doubt, please seek the advice of a financial adviser. Your capital is at risk if you invest. This post has been approved as a financial promotion by Resolution Compliance Limited.
Property Moose is a trading name of Crowd Fin Limited which is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (no: 574048).
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