My parents married, obtained a mortgage and bought their first home in the 1950s. For several years prior to that, they had saved almost every spare penny towards a deposit in the hope that they could beg the building society to grant them a mortgage. I can only imagine their pride as they stood in their own home for the first time, having joined the other 30% of the UK population who were home owners at that time. Fast forward to the 1980s, and with a little help from my family, I joined the by then almost 60% of the population who owned their own home.
Why did I need financial help at a time when real incomes had risen and mortgages were more freely available? Essentially, increase in demand was outstripping increase in supply. The postwar construction boom had peaked in 1968 at 425,830 new dwellings, and housebuilding was on a downward trajectory. House prices were rising fast. But I was lucky. My family could indeed help me.
So what has changed since for young aspiring home buyers? Since the 1990s, for each successive cohort of young people, fewer have been able to buy – and of those who did, they did it at a later age. What’s more, a record 34% now need financial help from their families to get on the housing ladder, up from 20% at the start of this decade.
The situation is unlikely to improve. Parental help will rise to almost 40% in the near future but the overall number of first-time buyers will fall. And when you add in the money that first-time buyers receive from inheritances, running at just under 10%, it would mean half of them relying on family help, primarily from the bank of mum and dad.
Given that owner-occupied homes constitute by far the largest store of wealth in the country, at 59% of net non-pension wealth, it seems reasonable to suggest that those mums and dads able to help their children buy a property are themselves home owners. So wealth is becoming ever more entrenched among existing home owners as our housing market is embedding social immobility by making it harder for young people from non-home-owning families to get on the housing ladder.
If we try to address demand for housing then we can press government to increase housing supply. Research suggests that we need to build about 175,000 homes each year to meet demand. This would probably require even greater loosening of the planning regulations than envisaged now, but would certainly put a brake on prices. And if these homes were all for rent – whether social (highly subsidised), affordable (marginally subsidised), or at market levels – then we would also be addressing the concerns of critics who have argued for many years that our housing market is too skewed towards home ownership.
Perhaps we could also try to make renting more the tenure of choice for middle-income households by a subsidised programme of building mixed developments to include higher-end homes for long-term rental. The UK housing market has often been compared unfavourably to Germany’s, where home ownership, although rising, is still around 15 percentage points lower than in the UK. This means more middle-income households rent. This difference between the two countries was exacerbated by postwar housing policy. In the UK, government programmes focused on building subsidised homes to rent to lower-income households and encouraging the expansion of home ownership among middle-income households. In Germany, where the housing stock was in worse condition, the government focused on homes to rent for both lower- and middle-income households.
But a more even mix of tenures does not address the social mobility issue arising from the way home owners can accumulate capital when renters cannot. So, rather than encouraging a better mix of tenures, perhaps we should encourage as many renters as possible to become owners? This is certainly the route Conservative governments tend to follow, with right to buy, enabling social renters to buy at a discount, right to acquire, for housing association tenants, or help to buy, assisting renters to save towards a deposit for a mortgage, along with various shared ownership schemes.
Of course, increasing the number of home owners increases the number of households able to build up a store of wealth for use as a reserve - in due course another bank of mum and dad.
This, however, still leaves behind those who rent, and with rents often as high as, if not higher than, mortgage payments, renters are unlikely to be able to build up a reserve without help. It seems to me this is inherently unfair. Yes, in a capitalist democracy there will always be inequalities, particularly of income, and those on higher incomes will be better able to withstand financial adversity but once they become mature home owners they will also have access to a store of capital (assuming property prices continue to rise as they have done since the second world war, of course). How can we make this fairer, more equitable?
Well, perhaps the bank of mum and dad should be regulated in some way? But we already have an inheritance tax system, so levelling the field between home owners and renters by further regulating intra-family intergenerational transfers is unlikely to gain much support. For better or worse we are, or at least define ourselves as, a home-owning democracy. Indeed, it can perhaps be fairly argued we fetishise home ownership and with it the right to use the equity we build up as we see fit, for instance remortgaging to release capital for our children – bank of mum and dad. Certainly, any perceived attack by government on the equity acquired through home ownership generates quite a backlash, as we see when government brings forward plans for older home owners to help pay for expensive long term-care by using the equity in their homes. It seems to me that what we need to do is to find a way in which those who rent can build up their own capital reserve, their own nest egg, just like home owners do. The problem is that rent consumes a large part of their disposable incomes, whatever their income level.
What is needed is a means by which a portion of a tenant’s rent – say above a set social rent level – can be diverted into a long-term savings plan for that tenant. The mechanism would mimic what we already do in some ways with help to buy. Why not also have “help to save” – a sort of long-term cashback scheme that could be used after five years or so to fund a deposit for home ownership or, if you decided to keep renting, would continue across a tenant’s lifetime to provide capital for a rainy day or help towards retirement or care costs – or even as the basis of a bank of mum and dad.
What this would do is give those on lower incomes (or in London even medium incomes), the means to build up their savings via their homes, in the way that home owners enjoy now. Essentially, help to save could provide a more even playing field, and a bank of mum and dad for all.