By: Lily Parsey

When we talk about intergenerational fairness and planning for the future, the discussion often steers to home ownership. Will younger people today be able to achieve the same levels of security their parents and grandparents did by owning their own homes? And what ripple effects will this have on people being able to reach the financial security they need to start their own families, retire or embark on other life transitions?

And indeed, it’s getting harder for people to start climbing the property ladder. Over the past 30 years alone, the house price-to-earnings ratio has more than doubled in London. Even beyond the capital, house prices have been soaring. And looking at the current situation, despite a short blip during the pandemic, house prices continue to be alive and well.

But just as an older person today is different from an older person tomorrow – with longer working lives and more periods of time spent in education or caring for a child, parent, grandchild or partner (or a combination of those) – the future of home ownership might look very different too. And change might not be such a bad thing if we change our thinking and shake up our assumptions.

Why is renting such a problem?

It seems embedded in our culture that buying, owning your own home is a necessary life stage to reach and that failure to reach this stage is almost a failure in ourselves. “An Englishman’s home is his castle” still rings true for many. According to the British Social Attitudes survey, 97% of Britons would recommend a newly-wed couple to buy their own home.(1)

But clearly it’s much more than a nostalgic cultural attachment to property that keeps home ownership high on people’s agendas.

Renters pay more

There’s a clear financial incentive to buying your own home in the UK. In most places in the UK, rent is much higher than a mortgage, so not only are those who do not buy their own property disadvantaged by paying for longer and not getting that money back, they’re often also paying more. But with a big upfront price tag attached to it, home ownership will continue to remain a mirage for a growing proportion of the population, with inequalities in property wealth on the rise.(2)

Tenants’ rights… what rights?

It’s not just about money. With lots of properties only available on short contracts or with lots of caveats attached, tenants often have little control over rent increases, length of tenure or the layout of their own homes. With many landlords even forbidding people to bring in their own furniture or hang pictures, you can understand why many people want the freedom of making their home their own – by actually owning it.

An insurance in an increasingly risky world

An owned home also creates a sense of stability and security in an increasingly risky world. Be it pensions that are moving from final salary schemes to defined contribution schemes, navigating unknown care costs for yourself or loved ones, or needing to take increasing responsibility for your own health – home ownership has become an insurance policy in a highly volatile environment where most of the risk is placed on the individual.

Hardly anywhere in the world seems to place as much emphasis on home ownership as us – because so much depends on it in the UK.

Getting by in retirement

While recent decades have seen huge strides in reducing pensioner poverty, there is a real risk of pensioner poverty rising again.

With longer lives, increasing personal responsibility for saving into a pension and a growing need to work for longer while health might not necessarily allow it, a recent ILC report found that as many as 1 in 3 Gen Xers (those born between 1965 and 1980) are at risk of financial hardship in retirement.(3) And at the moment it doesn’t look like this will become much better for future generations.

To make up for these shortcomings, many people are looking to their housing wealth to contribute to their pension pots and to keep outgoings low in this phase of their lives.

Managing unpredictable care costs

Another risk is unpredictable care costs, either for ourselves or loved ones. While many of us are likely to need some form of care in our lifetimes, the real issue is not knowing what kinds of costs we may be facing. In 2019/20, the average cost of a local authority-funded care home place for someone aged over 65 was £679 a week.(4) But there is considerable variability.

In 2010, the Dilnot Commission estimated 50% of people aged 65 and over will spend up to £20,000 on care costs and that 10% would face costs of more than £100,000. And it’s hard to predict where on that scale we or our loved ones will fall. While the Government has this week announced its plans to support social care funding through an increase in national insurance contributions and the introduction of a cap on social care costs from October 2023(5), the cap of up to £86,000 is still going to be far from the expendable extra income that many people will have at their disposal.

And there are real concerns that the promised boost in funding will be a drop in the ocean, too little too late – with actual effects on the end user potentially still taking a long time to see.

In the absence of care insurance or a strong lead by Government to fully address care funding and costs, many people use and are likely to continue to use their housing wealth (for example by downsizing or using equity release) to pay for care costs – making it in many cases a de facto insurance policy.

Providing for the next generation

Housing wealth is also one of the principal assets many people pass on to future generations. In fact, 36% of Britons are expected to inherit some form of property in their lifetime.(6) It’s the starting point for many to be able to accrue the capital to get started on the housing ladder themselves. Therefore, perhaps not too surprisingly, many people who have comparatively less to pass on or inherit are more in favour of inheritance and keeping inheritance tax low – a system that may leave them worse off, with inequalities continuously rising.(7)

It comes to show really how little trust people place in the government to act in their interest if the property wealth they could inherit (which may be below average) were to be invested in providing a public safety net. In an increasingly individualistic society, home ownership has become much more than a tradition or preference, it’s a sticking plaster for a diminishing welfare state. And it’s hard to break that cycle if people feel they have no one to turn to.

But what about people who won’t be able to buy?

But a growing number of people simply won’t be able to afford to buy their own property. The number of households in the private rented sector in the UK is already high and has increased from 2.8 million in 2007 to 4.5 million in 2017.(8) This trend is only going to continue.

Government approaches to this issue have been focussed on helping more people to own their own home. But perhaps, as the role of renting increases, we will need to start considering other approaches and thinking about the real problem. From “Help to buy” schemes (which have of course now come to an end) to proposals of supporting start capital to help first-time buyers, what about just making sure we have a pension system that works, properly funded social care, or a rental market that doesn’t hold renters to ransom?

Does a move to renting need to be all-bad?

It’s not inconceivable that renting becomes a sustainable option. Especially in the context of decarbonisation efforts, including of housing stock, it doesn’t make sense for everyone to own their own homes. Renting has to become a tangible option. And in lots of countries, this is already the case.

Taking a look at Germany and parts of Scandinavia for example, many people rent for the duration of their lives. With changing lifestyles, many people might even want the flexibility that renting can offer. It can be aspirational and in an increasingly fast-paced and interconnected world, renting can make sense – it doesn’t have to be the last resort. Similarly, renting doesn’t just have to be an option for the young. There are lots of reasons why renting in later life can be a good thing – offering flexibility, potentially helping people who previously owned release some money, or just to reduce the worry around house maintenance and having someone else to fix the roof.

But in countries, where renting is the norm, there is also strong legislation in place to protect renters, there are rent caps, there are stronger safety nets, some countries have contributory care insurances that employers are mandated to pay into.

So when we’re talking about moving the needle on renting and home ownership, we also have to think about all these other policy areas. Perhaps one of the reasons for the resistance to rent caps and greater rental rights in the UK is that we’re not ready to have the bigger conversation about how we’re going to support people to have adequate retirement savings or fund social care beyond national insurance hikes…

Who wins and loses? And is this ultimately sustainable?

By upholding the myth of home ownership, we are inadvertently turning a blind eye to the growing number of people who simply won’t be able to (or may not want to) buy their own home or continue to own it – making it easy to blame individuals for not having a safety net in retirement or be unable to finance their care.

We need to do better and ensure that things such as paying for care, being financially secure in retirement and setting up your children doesn’t become a luxury only afforded to those that happen to own their own home. Home ownership has been an easy option, camouflaging some of the cracks of the welfare state, for too long. But when it’s no longer an option, perhaps we need to change our assumptions.

References

1. BSA 36 | Key findings (natcen.ac.uk)
2. Total wealth in Great Britain – Office for National Statistics (ons.gov.uk)
3. Slipping between the cracks? Retirement income prospects for Generation X – ILCUK
4. Adult Social Care Activity and Finance Report – NHS Digital
5. Boris Johnson unveils £12bn-a-year tax rise to pay for NHS and social care | Tax and spending | The Guardian
6. MFS Report – Inherited Property.pdf (mfsuk.com)
7. Inheritance tax is fair but unpopular — is there a solution? (newstatesman.com)
8. UK private rented sector – Office for National Statistics (ons.gov.uk)