The norm for the middle classes used to be that you rented your first home until you had saved the deposit to buy. You then started to pay down your mortgage and that, combined with the effect of house price growth, allowed you to trade up the housing market until you reached the pinnacle of owning a family home. As you approached retirement you paid off your mortgage, leaving you with a property which you owned outright.

To borrow a phrase from Damon Albarn, that left a whole post war generation with "a sense of enormous
 wellbeing."

Somewhere around the turn of the century that norm changed; mortgaged home ownership began to fall and private renting began to rise.

Speed of change

It is only now that the extent of the change is becoming apparent. The census tells us that only two local authorities in England and Wales saw absolute levels of home ownership among the under 35s rise between 2001 and 2011. The two – Manchester and Tower Hamlets – both saw significant levels of new build flats which facilitated this.

More pertinently, the English Housing Survey tells us since 2001, levels of home ownership among the under 35s have fallen by 41%. It doesn’t stop there. Those same levels of home ownership have fallen by 17% among the 35 to 44 year-olds (see Graph 3.1).

Redistribution of equity

Suddenly there are generations who have a much lower financial stake in the property they occupy. We estimate that for every £100,000 of housing occupied by the under 35s, their housing wealth is just £14,000.

In locations where house prices have struggled to recover, the under 35s are worse off still. In Slough, Burnley, Barking and Dagenham and Hartlepool our calculations indicate that the under 35s hold no net housing wealth at all.

Though there are contributory factors, such as rising levels of student debt, the fall in mortgaged home ownership fundamentally reflects a step change in the deposit needed by first time buyers to get on the housing ladder. This became entrenched following the housing boom of 2001 to 2004 when house prices rose by 65% in real terms. Post 2007, the situation became even more acute as loan to values ratios fell and the percentage deposit needed to buy a house rose.

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Beacon of hope

This all paints a fairly bleak picture for the future. But before we get into a spiral of depression, it is worth remembering that the shape of the housing market can change in other ways and there is a beacon of hope for aspiring first time buyers at the other end of the generational spectrum.

The English Housing Survey also tells us that levels of home ownership among the over 65s have risen by 27% since 2001 and by 13% among 55 to 64 year olds.

Our calculations suggest that the over 65s hold approaching £1 trillion of equity in the homes they own. Just as the under 35s have suffered from constrained access to home ownership in the 21st century, so the over 50s have benefited from the increased accessibility to home ownership in the 20th century.

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Learn from your elders

Either in death, or increasingly in life, wealthy pensioner households will release their equity, enabling younger generations to get on or move up the housing ladder.

This is not to deny that younger generations will be renting for longer, but it does not mean that they will be precluded from home ownership forever. They may first buy later in life and their first home may well be a three bed terrace, rather than a one or two bed flat.

Similarly, there appears to be an increasing recognition that parents and grandparents will have to help younger generations on to and up the housing ladder. Indeed, more people are making early plans to do so, but it seems unlikely that this will provide a full solution without further encouragement.

Downsizing needs to be made a more attractive proposition. Arguably, future governments should pay as much attention to providing good quality retirement housing in order to free up housing wealth as they have done on schemes directly targeted at first time buyers, such as Help to Buy.

Similarly, given the speed of change, addressing the shortfall in the supply 
of private rented accommodation remains critical.

Taken from
Residential Property Focus Q2 2014