More needs to be done to improve housing opportunities for young people as increasing housing costs are a major issue facing the younger generation in Britain today, says a new report from the House of Lords Select Committee on Intergenerational Fairness and Provision.

Calling the government to act in a report on Intergenerational Fairness and Provision, the Committee suggests that reform to stamp duty is needed and warns that the government’s proposed reforms to the private rented sector do not currently provide security to enough people. This follows the new regulatory framework that has been rolled out over the last few years.

Addressing the UK’s housing issues

The major concern, according to the report, is that younger people are finding it increasingly difficult to buy and rent property. This will likely become a greater problem as they age and change is recommended soon, so that renters and buyers alike can have access to affordable living options, including safe and secure tenancy.

Propp – MPU

The report also says that the government should ensure that local plans have specific policies to address the needs of younger and older people. If the new National Planning Policy Framework does not go far enough to address these issues, then more action should be taken.

A generational difference

Individuals born between 1981 and 2000, otherwise known as ‘Millennials’, appear to be spending over one and a half times more, as a proportion of their income, on housing at the age of 25, as compared to the generation born immediately after the Second World War, says the report.

Typically, housing costs as a proportion of income have declined as individuals entered their 30s in previous generations. However, it is unclear whether this latest generation will experience a similar decline, due to the external factors affecting their ability to secure affordable housing.

Ultimately, this increase in housing costs as a proportion of income does not appear to be caused by younger generations choosing to spend more to prioritise living space.

The amount of floor space per person for those aged under 45 has actually fallen over the last 20 years and the amount for those aged over 45 has risen, indicating the generational disparity, highlights the report.

Also, the increase is not caused by younger people paying more to live closer to work, says the report. Most demographic groups have had longer commute times than the generation before them, based on official data.

Renting vs buying

In the private rented sector, younger generations have a larger income gap. Millennial private renters pay 35 per cent of their income at 25, whilst private renters born just after the Second World War paid just over 15 per cent of their income at 25, according to the report.

When it comes to mortgage holders, younger generations pay similar amounts to mortgage holders born just after the Second World War, by the time they turn 25, according to the report. However, this is largely due to lower interest rates and this could change if interest rates rise, the report points out.

Interestingly, older generations who owned property at a young age had a more difficult experience than younger generations who own today. This was due to higher interest rates in the past as well as the experience of negative equity in recent decades. Overall, there are fewer younger homeowners than the generations that came before.

Call for an overhaul

John Phillips, group operations director at Just Mortgages and Spicerhaart, welcomed the report and commented that Stamp Duty has long stifled the market and an overhaul is indeed needed as well as significant cuts to the tax.

He said: “Stamp Duty tax makes up such a huge proportion of the cost of moving that many of those who want to upsize are choosing to extend instead, creating a plethora of houses all the same size and nothing in between.

“While at the other end of the scale, older people are staying put rather than paying to downsize and are being criticised for taking up all the family homes,” he explained.

Phillips points out that there is an argument that Stamp Duty brings in valuable income for public spending, however, the costs associated with people not moving because of Stamp Duty costs are also great. This includes older people living in homes unsuitable for their needs, which adds extra pressure to health and social services.

“I supported the cut in Stamp Duty for first time buyers as it was a start, but said at the time, if you only help first time buyers, property prices will be forced up, as sellers try and add the money saved onto asking prices, to help them cover their own stamp duty costs and this is what we have seen, to some extent,” Phillips added.

Addressing the imbalance

Becky O’Connor, personal finance specialist at Royal London, said that the imbalance of housing wealth and costs between the older and younger generations is an urgent social issue, with those renting set to face the worst of all worlds as they pay more for less.

She commented: “Greater housing costs among the young, whether that’s rent or mortgages, have serious implications, such as living in cramped accommodation far away from work and putting off having children.

“But care should be taken not to blame older people for this. The report makes it clear that older people are helping their children and grandchildren where they can. Many have their own housing cost issues to face.

“The causes are structural and therefore require policy reform, not simply more help from the Bank of Mum and Dad, to resolve intergenerational unfairness,” she said.

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Jim Kersey
Jim focuses on the socio-economic impact of housing. His reporting for Property Notify often touches on topics such as changes in sentiment among investors in various housing sectors, as well as the impact of various developments on the average person.

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