Millennials and housing – interesting data but incorrect analysis and policy prescriptions!


A new report by the Resolution Foundation points out that younger people are finding it costly to rent and difficult to purchase a home.

Millennials are spending three times more of their income on housing than their grandparents yet are often living in worse accommodation, says a study launched by former Conservative minister David Willetts that warns of a “housing catastrophe”.
The generation currently aged 18-36 are typically spending over a third of their post-tax income on rent or about 12% on mortgages, compared with 5%-10% of income spent by their grandparents in the 1960s and 1970s. Despite spending more, young people today are more likely to live in overcrowded and smaller spaces, and face longer journeys to work – commuting for the equivalent of three days a year more than their parents.

By highlighting intergenerational inequality, Willetts hopes to break down public opposition to mass housebuilding – not least from parents who despair at the difficulty their children face in finding good housing. He is arguing for a new towns programme in which the government buys land that does not have planning consent to create large new communities of homes for sale.

The RF is quite good at identifying certain trends in data yet fundamentally wrong in its analysis of cause and effect and policy prescriptions.

What the report, in common with many others, fails to do is to actually look at the real issues. What the report identifies quite correctly is that younger age groups have fared badly compared to older generations. Their conclusion is that ‘We need to build more houses!’ But actually that is not the answer.

The main feature of the housing market is that although housing supply largely matches housing ‘need’, it does not take into account what the supply is for. If developers focus on luxury housing, housing for second homes/holiday lets then the actual supply for those needing a home will be far lower than the figures suggest and at the same time is likely to push up house prices.

The ease of access to credit is another factor as the report itself admits. But studies have shown that easy credit has been a key factor pushing up house prices over time,

Demand for housing has also risen as the population has increased and is a factor in the provision of smaller, lower quality housing. In one sense rising land and house prices

    are

a consequence of a limited supply of land.

Demand for housing in the UK is skewed towards those on high incomes who have the capacity to purchase housing – not only to live in but to rent out thereby gaining an income.

Younger people were hit more by the recession and its aftermath than older age groups with lower incomes, poorer jobs and welfare cuts.
[http://www.independent.co.uk/news/uk/home-news/uk-inequality-young-people-suffering-their-worst-economic-prospects-for-several-generations-a6714226.html] [More young people also studying which defers the age at which they enter the labour market].

The disparities in income and wealth distribution are a significant factor in making housing less accessible rather than a lack of supply.

[We do find it irritating that David Willetts is never questioned about his role in Government when welfare cuts, student fee increases and unnecessary austerity were imposed which impacted significantly on the younger generation!]

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