In the UK, first time buyers in 2020 will need to earn £64,000 per annum to keep up with ever increasing property prices. The average London price is incredibly 10 times higher than the average salary. Only 26% of people aged 20-39 expect to own their very own home in the city by 2025. Compared to statistics in 2000, where 60% of people owned their own homes, this is pretty shocking. It seems for Millennials, almost impossible to pay the new ‘typical’ housing prices.
Why is it difficult for young people to get on the housing market?
In the last 30 years, house prices have increased rapidly. This growth in price of housing even surpassed the 2008 recession.
Housing prices have been increasing since the late ‘60s. The average house price was £4,312 in 1969, which increased to an average of £10,388 in 1975. By 1980, the average price of housing was in the £20,000s. However, this increase seems like nothing nowadays, considering the average house price in 2016 is £198,564. That is nearly ten times more than the 1980s
Now, of course wages have increased also in the last 30 years, however, not to the exponential level at which housing prices have.
In 1995, the median income in London was £19,000 and the median house price came out at £83,000, meaning that the average person was spending 4.4 times their income on buying a property. However, by 2012-2013, the median income in London increased to £24,6000 and the median house price in the capital had increased to £300,000. This meant that people were spending an incredible 12.2 times their income on a single house.
‘Generation rent’, as young people are known in the housing market, are essentially doomed in a life of expensive rent. As the average house price grows far beyond the average salary, the thought of owning your own home as young person seems almost impossible.
Gavin Barwell, the housing minister, suggests a new approach to tackling the housing crisis. Barwell thinks that grandparents should directly hand their grandchildren inheritance to help them when buying their first home. Although seemingly innocuous, this is also incredibly presumptuous that all who are keen to getting on the property ladder will have grandparents who have a home to give to them, or the inheritance to buy their own.
Many could be quick to assert that young people should be cautious of their own money to make their future decisions, however, they already are. According to a ‘generation rent’ report from the bank Halifax, the proportion of people aged between 20 and 45 putting money side for a deposit had been steady for three years.
The distant dream of the property ladder
A new survey has suggested that inheritance and cash gifts are increasingly looking like the only way for many young people to get themselves onto the housing ladder as rising prices have made it unaffordable to buy a property.
50% of parents believe that their children will only be able to afford housing after inheriting. Further, 1 in 6 people between the ages of 25-34 relied on inheritance to buy their own house. With the property ladder becoming a replica of Jacob’s ladder, it seems that the millennials will have little choice. Although not everyone will have this luxury, it may be more people than you suspect. British people who are aged over 55 currently own more wealth in their homes than the annual GDP of Italy. The Bank of Mum and Dad may be forgotten as The Bank of Grandma and Grandad steps up in the housing market.