Generation Rent

Generation Rent refers to those who feel they will be unable to ever purchase their own property and will be forced by economic necessity to live in rented property .

This is regarded as something new, and at least in the media leads to a feeling of resentment. So how did we get here?

History of UK home ownership

The charts shows data from the Office of National Statistics on housing categories.

There are three categories of housing:

• Social Housing - this is housing provide by charities or local councils. This category scarcely existed prior to 1918, but following the World Wars councils were required to provide housing. Councils expanded further after 1945 as they rebuilt the depleted housing stock. The Right to Buy scheme saw much council housing sold off in the 1980s at a steep discount. Additionally much council housing has also been transferred to Housing Associations.
• Private Rented - This was the largest category after the First World War. However controls on rental prices were imposed in 1915 and this made renting a less profitable investment. In 1988 new laws on tenancies made owning properties to let out a more attractive position. There also arose new Buy-to-Let mortgages which fuelled many investors purchasing properties to rent out. This is a tax efficient form of leasing property as the interest costs can be offset against the tax on income received from rent paid.
• Owner Occupied - Housing that owners own or have a mortgage against. This rose steadily throughout the last century. However the percentage of people in this category fell in 2011 vs 2001 for the first time in a century. Within this category there was an increase in absolute number of people from 14.9m to 15m. However the number owning outright(no mortgage) rose by 0.8m, the number with a mortgage fell by approximately 0.7m.

Reasons for decline in Owner Occupied Housing

There are several reasons why owner occupancy fell and might be expected to continue to fall.

• Lenders now require greater deposits. Previously lenders were prepared to offer loans up to 100% of the properties value, now they require at least 95% deposits. This is made worse as the cost of renting are not necessarily that much higher than servicing a mortgage.
• Lenders are more careful in who they lend to and require perfect credit records for loans with lower deposits.
• Graduates now leave university with much higher debts than in the 1990s, the repayment of these loans is a drag on disposable income available to pay mortgages. New graduates may face loans of c£60k and so be wary of taking on additional debts even if these are available.
• House prices are higher than they were in the 1990s(even accounting for inflation)
• Wages have failed to keep pace with inflation over the last decade. This means individuals have less money to spend on mortgage payments or save towards a deposit.

Generation Rent is the media friendly name given to a problem of lack of affordability for property for First Time Buyers. The government has attempted several schemes to resolve this, but the problem still appears to persists.