A housing crisis has been plaguing the UK for decades. Young people are finding it increasingly impossible to get on the property ladder and have to rely instead on an exploitative rental market. Meanwhile, older generations continue to accrue benefits from their domination of the property market. All these factors have helped fuel a new generational feudalism.
The Generational Divide
According to the Office of National Statistics (ONS), the number of first-time buyer mortgages averaged around 486,000 per year between 1980 and 2002. Between 2002 and 2003, however, the number of these mortgage approvals dropped by 31%. Then, from 2007 to 2008, there was a 47% decrease. Since 2013/2014, they have crept upwards, but they remain far below the pre-2003 average.
Naturally, the decrease in first-time buyer mortgage approvals has led to a decline in the number of young homeowners. Per the ONS, in 1991 67% of 25- to 34-year-olds were homeowners. By 2011/12, however, this number had declined to 43%. In the same period, homeownership for 16- to 24-year-olds dropped from 36% to 10%. Even amongst 35- to 44-year-olds, homeownership fell from 78% to 64% over the same period. Clearly, the housing crisis is affecting younger generations.
Not so for older generations. In their age groups homeownership has actually increased. 77% of over-65s own their homes in England, while 69% of 50- to 64-year-olds own theirs. Given that extortionate house prices have led to increasingly unaffordable deposits, many young people have taken to renting instead. According to statistics, 65% of 16- to 34-year-olds rent, while only 23% of over-65s do. Of course, someone owns the properties that younger generations are renting. These statistics make it easy to guess which age group they belong to.
Older Owners, Younger Renters
The unbalanced effects of the housing crisis on different generations has significant implications for differences in generational wealth, too. As the rise of UK house prices have shown, homeowners can benefit significantly from appreciation in their properties’ value by leveraging their homes as financial assets. Selling a flat in central London bought cheaply in the 1980s, for example, could net a larger house somewhere cheaper – and more.
Owning your own property also means that extra cash is available for savings and investments. If you’re wealthy enough, you can even buy and let other properties – perhaps to younger generations. In short, home ownership is one of the primary means of wealth accumulation – a means renters don’t enjoy. The money that they spend on rent doesn’t contribute to asset building either directly (through purchasing property) or indirectly (through the accumulation of extra assets that home ownership permits).
Let’s look at the statistics. According to the ONS, the distribution of individual total wealth in the UK over the period April 2018 to March 2020 shows that the wealthiest 10% holds around half of all wealth. Crucially, their wealth is held primarily in the form of private pensions and property. If this statistic doesn’t make it clear which age group is the wealthiest, then this one should: individual wealth peaks in the 60 to 64 age group, which is nine times as high as the 30 to 34 age group. Indeed, wealth falls for the over-65 age group because it starts to go on its members’ retirements. Yet, as a group, they remain far wealthier than their younger counterparts. In their homes they have the key to any feasible asset-building strategy: a property whose mortgage has either been paid off or become significantly smaller.
From an asset-building perspective, money on rent is essentially money down the drain. This is especially true when we account for inflation. Rents have tended to increase rather than decrease, especially in cities, where renting is especially popular. In contrast, mortgage repayments remain steady if they remain within the original repayment term and/or interest rates lower. So while renters struggle to save and invest money during the housing crisis, people with favourable mortgages have more means to do both.
From Housing Crisis to a New Feudalism
So the rise of a new feudalism. With the older generations owning the majority of properties, younger people are likelier to pay them rent. Older, property-owning generations are the feudal lords who let propertyless younger generations, their vassals, enjoy the use and safety of their property. In exchange, younger generations make their contribution. Money, of course, is the most important one. Yet an abdication of dignity is another. A potential renter must prove themselves quiet, conscientious and mindful while in the property. They must conceal any aspects of their personality they suspect might force them down the pecking order of desirable vassals. If a landlord senses anything untoward, then they can simply reject that vassal in favour of another.
This somewhat hyperbolic comparison simply serves to show the huge disparity in power between the two generations. With housebuilding at an all-time low, landlords have no shortage of potential tenants. Thus, tenants must play by their rules and accept whatever fee landlords impose on them. It’s the law of the housing crisis.
Of course, one might argue that house prices and rents in the North East, for example, have grown at a much slower rate than in the South East over the last few decades. Surely tenants in these areas can pick and choose where they live more easily? But given that many jobs are concentrated in specific areas, such as London, this advantage amounts to little. Whether they want to or not, younger generations must move to where there are more job opportunities. And where there are more job opportunities, there are more people. And where there are more people, there is a higher demand for housing that is simply not available. Meanwhile, those areas of the North East are gutted of their best and brightest young talent, sending them into a spiral of socio-economic decline.
A Broken Social Contract
This state of affairs goes to show how the generational social contract has been completely undermined. Broadly speaking, the social contract underlying our society is characterised as one whereby younger generations will be wealthier than older ones. As the evidence above demonstrates, this is not the case today. By missing out on a key means of wealth accumulation, younger people will have less money to save for their retirement. Thus, at retirement age they will find themselves more reliant on pensions and less able to draw on more lucrative liquidity such as cashed-in investments and matured bonds. This situation contrasts starkly with that of their elders, who are on course to remain a far richer group than they ever will.
And the older generation knows it. The only age group in the last election who voted Conservative in the majority were the 60–69 and 70+ ones. (There are, of course, many pensioners who didn’t vote Conservative and who don’t enjoy wealth relative to younger generations.) It’s easy to see why the Conservatives emphasised their commitment to keeping the triple-lock pension system in place in the run-up to the election. So, with a new Labour government in place, will we see meaningful steps towards mending the generational social contract? Will we really see 300,000 new homes a year? A progressive tax system for capital gains, private pensions and inheritance? Will we see the financial benefits accrued from these steps be put into improving the prospects of younger generations, who are eager to learn new skills and work hard in rewarding jobs? Only time will tell.