If not a house…what ?

households.PNG

This chart taken from Office of National Statistics Data – seems significant. It shows that in the period following the financial crash renting became the norm for young adults in the UK.

Buying a house in your twenties was – for a baby-boomer like me – the rite of passage any young person aspired to achieving before they were 30. There are still substantial numbers doing so (some without the help of the Bank of Mum&Dad), but it is no longer the norm. Renting is the norm.


The detail

The chart shows that 2011/12 marked the point that home-owning 25-34 year olds were no longer in the majority, surpassed by those that rent privately. In 2005/06, homeowners represented 56% of all households headed by 25-34 year olds, and renters, both private and social accounted for 44%.

This picture has changed dramatically in the decade shown, with home ownership in this age bracket falling fairly steadily to 38.2% in 2015/16.

Social renting has remained relatively stable in this period, but has reduced from 19.8% in 2005/06, to its lowest in 2015/16 of 15.7%. A large increase in the number of 25-34 year olds who rent privately is evident, almost doubling from 24.2% in 2005/06 to 46.1% in 2015/16. Home ownership began to increase again in 2013/14 rising by 2.4% in 2 years.


This social phenomenon has to have deep implications for the way that future households organise their wealth, but I am struggling to put myself in the shoes of these young adults. If they cannot aspire to a house, what is their economic driver?

This is what the Economic Research Council have to say about the situation.

There has been much coverage of the decline in home ownership across the board, with particular focus on the plight of millennials, who have suffered from a range of economic disadvantages following the financial crash.

Indeed record numbers of individuals in this age range remain living in their parents’ homes for far longer than in previous years.

A recent study by an insurance company showed that in 2005, 27% of 25 year olds still lived with parents, whereas this figure rose to 33% in 2016. Recent reports indicate that the scale of lending from ‘Bank of Mum and Dad’ or ‘BOMAD’, has increased dramatically with parents projected to finance 26% of all mortgages in 2017, an estimated contribution of £6.7bn towards sales totalling £77bn.

This is a growing trend that reflects the different economic circumstances between the generations: wage stagnation, the cost of university, the reduction in defined benefit pensions as well as the dearth of affordable housing (a product of both the promotion of buy-to-let as well as lack of supply).


The parent’s dilemma.

I find this new reliance on baby-boomers wealth to fund  millennial housing interesting. Is our investment in our children’s future something that stifles the initiative of this generation – or is it the entitlement of youngsters?
I would be really interested to see how this dynamic plays out over the coming years. There seems no immediate mass-market solution to the finance crunch and high price to wage valuations (other than parental capital and parental guarantees).
But I worry that BOMAD worrying, both in terms of my being a parent and as a citizen of a country whose housing stock is beyond the means of its young adults.

If you’re a parent worrying about being BOMAD – don’t go mad – read this great post by Merryn Somerset Webb;-   https://www.ft.com/content/b89226da-30e0-11e7-9555-23ef563ecf9a?myftTopics=Q0ItMDAwMDQwMw%3D%3D-QXV0aG9ycw%3D%3D#myft:my-news:grid

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s