Across every region in the UK, home ownership rates amongst 25-34 year olds have dropped by at least 10 percent in the last 20 years. The South East has suffered the most, with a 32 percent decrease in home ownership amongst 25-34 year olds in the region. While 18-34 year olds still remain evenly split amongst those who still live at home, those who rent and those who own their own homes, a shift towards lower ownership rates is occurring and it is becoming more difficult than ever before for young people who are still yet to get on the property ladder to own their own home.
These decreases in housing ownership amongst young people haven’t gone unnoticed, and the finger of blame has often been pointed at young people themselves for this problem. This demographic are often considered less likely to save what they earn and be more likely to spend their money on holidays and leisure activities as opposed to more “sensible purchases”.
However, this problem is more likely to have been caused by wider issues. Uneven housing demand across the country combined with a lack of housebuilding since the 1980s and an ageing population that is living in their homes longer than ever before has led to an explosion in housing prices. Although wages are increasing they still cannot keep up with this rise. As the above chart from Nationwide shows, the ratio between the price of a house for a first time buyer and earnings has steadily increased over the last 35 years, suggesting that house prices have been increasing at a much faster rate than real wage growth.
This considerable increase in house prices relative to real wages is not only damaging home ownership prospects for young people in the current climate, but also harming confidence in their ability to purchase one in the future. A Halifax Press Report in 2017 claimed that half of 18-34 year olds felt that home ownership was not a realistic option for people of their generation and a further 25% were certain that they will never own their own home.
This has implications for spending and saving; if young people have given up on the prospect of home-ownership, why save for it? The result is a generational shift in saving and spending behaviours among young people, and the picture is a complex one.
As the chart above – illustrating our latest Trajectory Global Foresight data from May 2018 – shows, at least 10% more 18-34 year olds than 55+ year olds reported that they intended on spending more on out of home leisure and out of home food and drink over the next few months; at a glance, supporting the narrative that young people can’t afford a home because they’re not inclined to save.
However, delving deeper into the data suggests otherwise. It shows that when asked how they plan on changing the amount of money they will save over the next few months, 37% of 18-34 year olds said they intended to increase the amount they were going to save. Comparing this to 18% for 35-54 year olds and just 9% for people over the age of 55, this clearly shows that young people may have more conservative savings habits than many give them credit for.
It is not necessarily the amount that is being saved is changing, but rather what it’s for, with increased saving amongst 18-34 less likely to be associated with housing and more likely to be associated with other big ticket items as our data on spending suggests.
This leaves 18-34 year olds with a problem, however, with many facing the prospect of ‘renting into retirement’ and never owning their own property due to rapidly increasing house prices and real wage growth that simply cannot keep up. Nonetheless, it is important to remember that this issue has been caused by far more than simply naïve expenditure by young people, and actually has far deeper lying roots within the UK economy, with changes to spending and saving habits an effect, rather than a cause.
The prospect of a growing percentage of the UK population renting their entire lives has further implications for the country’s economy. The large proportion of the millennial cohort that don’t yet own a home will be forced, as they approach 40, to give up on the dream entirely rather than face the prospect of paying a mortgage into their 70s. In addition to this, with such a large number of working age people in the rental sector, attitudes to renting and the politics of it will change, more legislation and guarantees protecting renters are likely to be introduced.