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The generation gap and the cost of renting

Tuesday 03 January 2017

Home ownership amongst 25-year-olds has plummeted by more than half in the last 20 years, and the cost of renting is preventing people from purchasing, according to new analysis for the Local Government Association (LGA) conducted by Savills.

On average, private renters now spend 34 per cent of their total household income on rent and social and affordable renters pay 29 per cent. In comparison, homeowners pay an average of 18 per cent of their total household income on their mortgage.

Average house prices are now at 7.9 times average earnings. The average size of a deposit needed to get a mortgage is 62 per cent of annual incomes; in London, it is 131 per cent.

With access to housing to buy increasingly limited to future generations, the LGA insists homes for affordable or social rent are vital to help more families afford to save up for a deposit to buy a home.

Only 6,550 social rented homes were built in 2015/16. This is a drop of 88 per cent from 20 years ago when 56,950 were built in 1995/96.

The LGA, which represents more than 370 councils in England and Wales, warns a drop in social and affordable rented homes is combining with rents rising above incomes to make it more and more difficult for people to get on the housing ladder.

As a result, the proportion of total homeowners of all ages across the country has fallen by 4.4 per cent since 2008 while private renters increased by 5.1 per cent. 

Alongside building more social rented homes to boost home ownership and a renewed effort to increase the incomes of those in need of affordable homes, council leaders say there is also an urgent need to better provide housing for older people.

Between 2008 and 2039, 74 per cent of projected household growth will be made up of households with someone aged 65 or older. An increase in age-friendly housing will becrucial to helping older people stay healthy and happy for longer, and reducing demand on NHS and care services. 

Cllr Martin Tett, LGA housing spokesman, said: 

“Our figures show just how wide the generational home ownership gap is in this country. A shortage of houses is a top concern for people as homes are too often unavailable, unaffordable and not appropriate for the different needs in our communities.”

"...The Government’s Housing White Paper is an opportunity to boost housing supply and affordability. It must recognise that a renaissance in housebuilding by councils will be crucial to helping ensure the mix of homes to rent and buy that are affordable for those people that need them."

“This means powers and funding given to councils to replace sold homes and reinvest in building more of the genuinely affordable homes our communities desperately need.

“But our focus is beyond just bricks and mortar. The Housing Commission sets out how council housebuilding can help deliver homes but also help families boost their household incomes, create prosperous and successful places, and improve the health and quality of life for our ageing population.”

Lib Dems hit out

In a similar vain, following the release of data by the Department for Work and Pensions about social housing lettings which illustrated that 21,859 social rented properties have been lost in the last two years and a further 12,363 council social rented properties, Liberal Democrat leader Tim Farron hit out at the Government saying:

“The Government’s housing reforms have made things much worse for those who are living in social housing and this is just further evidence of that.

“There will be fewer affordable homes for rent and fewer places to turn for those needing a secure home where they can rebuild their lives.”

Commission's recommendations

The LGA’s Housing Commission have heard from over 100 partners and received submissions from a range of organisations. Over 30 recommendations have been put forward to central government within the LGA’s final Housing Commission final report, ‘Building our homes, communities and future’, these include:

  • Freeing councils from restrictions on their borrowing to build more affordable homes - the number of affordable homes built in 2015/16 fell by 52 per cent and was the lowest number in 24 years.
  • Pilot ways to financially reward housing providers who successfully support tenants into work and increase their earnings - 48 per cent of working age tenants are in work (compared to 72 per cent nationally) while 33 per cent have no qualifications (compared to 15 per cent nationally).
  • Giving councils powers making it easier to compulsory purchase land that has planning permission for homes but which is not being built out – previous research for the LGA found there are up to 475,000 homes with planning permission but are yet to be built.
  • Local discretion on the number of Starter Homes required in new developments - discounted Starter Homes prices will be out of reach for all people in need of affordable housing in 220 council areas (67 per cent).
  • Allowing councils to set planning fees locally to cover costs - councils are approving nine in 10 planning applications but local taxpayers have been forced to spend in excess of £450 million covering a third of the cost of all planning applications in the past three years.
  • Give councils tools to ensure effective land markets and to capture increases in land values to fund infrastructure - OECD found that UK infrastructure has suffered from under-investment compared with some competitor countries since the 1980s.
  • Ensure funding is available to enable older people to modify their own homes– only 7 per cent of current homes in England include the four basic accessibility features (level access to entrance, a flush threshold, sufficiently wide doors and a toilet at entrance level).
  • Build more new homes that support healthy ageing and reduce costs pressures on health and social care - housing specifically for older people accounts for just 6 per cent of existing stock and of just 7,000 of the 155,000 homes built in 2014/15.

All of this comes in advance of the Government's Housing White Paper which is due this month. The LGA are hoping that the recommendations will help local and national government work together to solve the nation’s housing challenges.