The expectation that each new generation will be a little better off than their predecessors – wealthier, healthier and more long-lived – has hit a road block in recent years, as the holy grail of home ownership becomes a distant dream for many.
A two-year investigation into intergenerational fairness, overseen by think tank the Resolution Foundation, has confirmed that rather anticipating a rosy future, millennials (born between 1981 and 2000) are instead being forced to rent expensive accommodation, undertake longer commutes and face much higher pension contributions than previous generations, with little chance of having enough left over to save for a home.
It’s the culmination of 30-odd years of decline in home ownership among young people; the proportion of homeowners aged between 25 and 34 has more than halved in some areas, in a crisis that extends far beyond the capital. The lag has become so pronounced that even with a fair economic wind, it’s unlikely that millennials will catch up with the ownership levels of their parents.
In fact, predictions show that millennials are half as likely to own a home by the age of 30 compared to post-war baby boomers, mainly due to a toxic combination of sky-high house prices, low wage growth and tighter credit rules. An average-sized deposit that would have taken just a few years to save in the early 80s, would now take almost two decades to amass.
But, what – if anything – can be done to redress the balance? The Resolution Foundation believes that tax revenues may have to be adjusted, with the treatment of property and pension wealth reviewed.
From a property development point of view, there are no glib answers. Any scheme that disadvantages one group to benefit another will always come under fire, so the idea of creating a land value tax (LVT) or of allocating green belt land to housing development or slapping capital gains tax on prime residences are all fraught with problems.
Sadiq Khan has promised to green-light developments where affordable units make up at least 35 percent of the scheme, but an overhaul of planning rules by the government may stymie the flow of affordable housingthat is already under threat as developers exploit so-called ‘viability assessment’ loopholes in the current regulations.
Creating a greater supply of houses by relaxing the planning rules would appear to make sense but – as explained in this Civitas publication– it will take more than a revision of the planning system to increase the availability of new homes.
The 1961 Land Compensation Act enabled landowners to be compensated for their land’s potential – rather than current – value in the event of compulsory purchase. This not only gave landowners an incentive to hang on to their land in order to get a better price in the future but also meant that developers had an equally strong incentive to keep house prices high.
What it means today is that public authorities simply don’t have the power to enforce development priorities in the interests of the community – something that wasn’t an issue during the housing boom of the 1940s and 50s. A reform of this act is probably overdue, especially as the pressure to develop more affordable homes becomes a political hot potato.