Time is a great healer; all those injustices you felt in the past fade in importance in your life. But what happens when you see a bigger injustice as time passes? Do future generations seem to have it even worse? After looking at higher education in the first part on intergenerational unfairness, today in the second part I want to look at the housing market.
As I’ve mentioned before the housing market has been good to me. Actually very good – my timing has been uncannily lucky – buying only at the major dips and making handsome untaxed profits on each purchase.
Nonetheless, I am getting concerned more and more that this is not repeatable for younger people today. The market seems to have fundamentally changed in a way that doesn’t seem that fair to me.
Over the years as the world pursues growth objectives we see changes in many facets of life. Today focussing on housing, I hope you can agree that the housing market has been changing. Both house prices for sale and rental prices appear to be growing exponentially in real terms, without any corrections to level it out.
Alongside this, inflation is ever-present in developed economies and incomes are also increasing. However, housing costs and wages have been growing apart from each other. Both prices for property for sale and the linked cost of renting housing have risen. While wage growth struggles to keep pace with inflation, housing costs have increased by more.
Housing Market Today
As these two costs diverge, we are now in a place where young people are spending more and more of their income on housing. But comparing them to people 50 years ago and even 25 years ago, you can see significant differences between the generations.
To buy a house in 2018 (latest data available), you’d have needed an average of 7.8 times annual earnings. In 2002, this figure was 5.0 times annual earnings.
However, these are just averages. And when you look into the detail, you can see how variable it is – some places are still relatively affordable, whereas others are very expensive compared to incomes. Watching the graphic below change from 1997 to 2018 you can see as areas become more affluent they also impact the areas around them. Moreover, by 2018 all of the South becomes unaffordable relative to local incomes.
And the observant will note, that the areas where more people want to live, i.e. cities are some of the most unaffordable. And that is even taking into account the significantly greater incomes enjoyed by the residents on average.
For that stats and details minded, you can read all about in in the ONS – Housing Affordability Report. Alternatively, for those more graphically minded, they have produced a great graphic to demonstrate this.
Housing Market Affordability
And so in 2019, we have ended up with a housing crisis. People who want to buy in some areas cannot afford to. And no matter how many avocado toasts and lattes they cut back on homeownership seems an impossible dream. Some people like me have struck it lucky – saved up and had enough income to buy at a time before house prices accelerated. And even older generations like baby boomers have benefited even more if they were on the housing ladder; sitting on very handsome profits. This is creating a gulf of inequality between generations. What you could do years ago could not be repeated today with the same results.
So what is the problem if some people can’t afford houses? Or to live where they want to? While I agree it’s unrealistic for us all to be able to afford a flat in Mayfair, I do think it is realistic for a top 1% earner to be able to do so, from her/his own income alone. And at the other end of the scale, we need to have easily commutable places near London where lower-earning staff can live. We need a mixture of people in society and all our cities. I’d argue the road sweepers, cleaners, shop assistants and chefs are just as important to house as the top earners.
Everyone needs a home, and we need a mixture of people.
But now we are in a situation where younger people can’t afford to live in lots of the country. We are creating a gulf between the older middle class who bought at the right time, and the younger who aren’t as lucky. Families are using their money to help out their youngsters, thus entrenching benefits on those with richer parents.
This goes further than money; a home is a safe and secure place to live. After all, there is certainly a reason Maslow rated shelter and security as very fundamental in his hierarchy. By allowing housing to become so unaffordable, we are forcing future generations without rich parents to make difficult decisions. And ultimately their standards of living and mental health will suffer.
It’s not just me saying this – read more from the press:
Privilege Check – isn’t this all a bit middle class?
And yes – this is a very middle-class perspective and first world problem. Every generation is stratified; there are babyboomers who have always rented and never benefited from the housing market. Likewise, there are millenials who have millions and mansions. But overall on an average basis, things are getting harder as time flows on. And if we leave these problems compounding they will impact social mobility and deny more and more people equal opportunities. So yes, it is a middle-class problem, which unchecked could ultimately lead to the hollowing out of the middle class.
In summary – something needs to change
To conclude, I don’t have a solution for this issue. We do need to build more, many more homes. We need to stop NIMBYism. Building on the green belt vs building higher needs to be evaluated. Revitalising the north is key – encouraging more business to relocate and decentralising government departments out of the capital.
But I do firmly acknowledge this is really a problem that needs much more focus. Given the complexity of the issue, a nuanced multi-faceted solution will be required, that takes into account the many driving forces, of which only a few I’ve covered.
Now, if we don’t make any changes we are entrenching inequality generation by generation. Do we really want to go back to when only the landed gentry owned and homes flow in families?
Over to you
- What are your thoughts?
- Do you think we have issues with intergenerational unfairness?
- What do you think the future of the housing market?