The growing housing divide is not just intergenerational

Daniel Bentley, 17 February 2016

Research by the Resolution Foundation this week shines a spotlight on not just the decline in home ownership but the group most affected by it: those on low to middle incomes, among whom owner-occupation fell from 73 per cent in 2000 to 55 per cent in 2014. Among the under-35s in that income bracket (those on below-average incomes but largely independent of state support), owner-occupation fell even more dramatically, from 57 per cent to 25 per cent; the majority in this group now rent.

Does this matter? A preoccupation with owner-occupation has long been regarded as distasteful by many on the left, something of an attempt to convert the population into Tory-supporting small capitalists. Then the financial crisis exposed the folly of lending too much to people who could ill afford it. And it is fair to say there has been a large growth in the number of people who genuinely do want private-rented housing on a short-term basis – students and younger professionals for instance, who appreciate the flexibility.

But there are growing numbers of people now – mostly young families who want to put down roots and invest in their home for the future – who do not want to rent from a private landlord but have no choice. And while homeowners are enjoying low interest rates and large capital gains (in most parts of the country), for renters housing costs are eating up more and more of their incomes. Fundamentally, a higher rate of owner-occupation represents a greater distribution of wealth. That this is in decline is usually described in terms of intergenerational inequality, and it is certainly true that younger people (as the Resolution Foundation’s analysis shows) are less likely to be homeowners now than were their parents at the same age. High house prices are commonly held to have benefited one age group, the baby boomers, at the expense of subsequent generations. (How house price inflation might be remedied will be the subject of a forthcoming Civitas report – watch this space.)

But the focus on intergenerational differences tends to distract attention from a more subtle consideration, which is that housing wealth is not enjoyed by all baby boomers equally: if that were the case then this wealth would, in time, cascade down the generations and a degree of equilibrium would be restored.

Actually, there are big differences in rates of owner-occupation, and the value of those properties owned, within each age group. John Hills of the LSE has illustrated well how, among those aged 55-64, the top 10 per cent have non-pension wealth of £670,000 or more, while the bottom 10 per cent have less than £15,000; the top 30 per cent have more than £350,000, the bottom 30 per cent less than £150,000 (see Good Times Bad Times, pp.153-154.) These are the sums that will cascade down the generations, with evidently very much more being handed on to those millennials with wealthy parents.

As Hills writes: ‘The equity issue… is not simply of one fortunate generation versus another. It is about the advantages of the better-off half of baby-boomers compared to both poor baby-boomers and to those members of younger generations who do not stand to inherit.’

The consequence of this is to concentrate home ownership not in the hands of a certain age group but a certain wealth bracket. This is already happening: amid all of the concern for the great mass of would-be first-time buyers who cannot get on the ladder, witness the simultaneous growth in the much smaller number of first-time buyers who are making cash purchases – with no need of a mortgage.

Those low to middle earners identified by the Resolution Foundation are not just least able to afford to buy a home out of their salary but, one suspects, least likely to inherit expensive properties from their parents. As a consequence, the diminishing opportunities for the least well-off to enjoy the fruits of home ownership become self-reinforcing. This is the legacy of the house price boom, which still now needs to be contained.