According to the latest Homelet Rental Index, London rents are unsurprisingly the highest on average at £1543, and the average for the rest of the UK at £764. For most 16-24 year olds, this can be up to 81% of their average gross income once state housing benefit has been included. On average, this number is 43% across England. This far exceeds the commonly used benchmark in numerous affordable housing regulations around the world that the cost of housing should take up no more than roughly 30-40% of one's net income.
Paying such a high proportion of income on rent means that people – especially the young – now find it difficult to save to buy their own homes. The continuously rising prices of houses and rents imply that saving will be even more difficult: in the year up to March 2016, prices rose by 9.0% in the UK where London alone experienced a 13% increase. This means that young people are increasingly trapped in the rental market, where they are often called ‘Generation Rent’. PwC has reported that London is set to become city of renters, with 40% owning their own home in 2025 compared to 60% in 2000. Only 26% of those now aged 20-39 will their own home in 2025, compared to 64% of those born in 1960-70.
Sadiq Khan’s proposed 50% affordable housing target will definitely prove hard to achieve and will likely make the housing situation worse in London. As quoted by the Home Builders Federation in an IB Times article, “Imposing unrealistic targets will make developments unviable, so preventing sites coming forward and reduce the supply of housing – including affordable ones – still further.”
Is the inability to buy a home necessarily a bad thing? Evidence exists to prove otherwise.
From data collected by the Office of National Statistics (ONS) on young people’s wellbeing, only 8% of those aged 16-24 found it difficult or very difficult to get by financially between 2013 and 2014. If young people were saving up for a home while experiencing rising living costs, house prices and rent, they would have definitely found it very difficult to do so and thus we would have seen a larger proportion of those claiming to be in financial difficulty.
As the number of young people in the UK saving up towards a deposit continues falling, it is clear that they are increasingly giving up on owning a home. As this happens and they accept they will almost certainly never own a home, they would increase spending on luxury items: holidays, a new car, furniture, et cetera. After all, spending the money would never change their probability on buying a home – that stood at close to zero from the start.
This has been supported by data from Fidelity International, where we can see that millennials spend more than retirees on unique experiences and education – 14% on dining out and only 8% on groceries and drinks – and they also ‘spend proportionally more on housing (19%) than any other generation’. Spending more on oneself should increase happiness and therefore should not be necessarily seen as ’bad’.
In this age of increasing occupational mobility, we see many people moving not only between jobs and industries but also to different countries as well. If one recognises that he (or she) would in the future be more mobile and does not want to remain tied to one place, there would be very little need for one to invest in a home. This is supported by a study by GlobalVisas.com that showed that a fifth of young people in the UK do not expect to remain in the UK after the age of 40, where the main reason cited was to find better paying jobs elsewhere.
Whether Generation Rent should be a serious concern or not is subjective, but solutions to tackle the housing crisis need to be implemented as soon as possible before people are priced out of living and working in London, and in the future, the United Kingdom.