No way out of the renting gap

Renters will remain the poor cousin to homeowners until politicians change their attitudes, experts warn

Renters will be worse off than owners by at least £400,000 over the course of their lifetime, as the latest report warns of growing barriers to social mobility (PA)

If there’s one thing that’s sure to stretch the intergenerational chasm just that little bit further, it’s property ownership stats.

The latest figures points to what we already know – that home ownership among the UK’s youngest adults is plummeting.

Data and analysis from a triumvirate of august institutions reckons that back in 1990 more than 60 per cent of 25-29 year olds – the very last of the fabled baby boomers - were homeowners. Today it’s just 31 per cent.

Even among those lucky few, the report – from Cambridge and Anglia Ruskin universities in partnership with the Social Mobility Commission – suggests, the bank of Mum and Dad is playing a key role, with 34 per cent of first time buyers now receiving a pot of cash to help secure a home (up from 2 per cent just 7 years ago).

“Owning a home is becoming a distant dream for millions of young people on low incomes who do not have the luxury of relying on the bank of mum and dad to give them a foot up on the housing ladder,” says Alan Milburn, chair of the Social Mobility Commission, who adds: “The way the housing market is operating is exacerbating inequality and impeding social mobility.”

In fact, those with help can typically afford to buy just two years earlier than those without help – albeit rising to more than 4.5 years for Londoners. But those few years can make all the difference.

A recent study by homelessness charity Shelter, which divided people into those who had been able to buy their first home before 30, those who bought after 30 and those who remained in rented accommodation after age 35 found, predictably, that there was a long-term financial divergence between those who own and those who don’t.

But the numbers are far greater than we might expect.

For a family with a child, for example, those who bought before 30 will be £146,300 better off over their lifetime than families who have to save and buy later, when parents were 30-plus.

Compared with families who never manage to buy, early buying families will be £561,200 better off. This was thanks not just to rising property prices, but also ownership related life decisions including the impact of taking career breaks to start families at different times to renters and pursuing higher paid jobs to cover the mortgage, as well as renters spending an average of £44,000 more over a lifetime on lost housing costs.

Nor are the benefits of owning purely financial. A separate study by digital mortgage broker Habito, points to a clear psychological link between owning and social status.

“We’ve seen repeatedly in our customer focus groups that for first time buyers, acquiring a mortgage is seen as a step up that reinforces a sense of belonging to their social group, catching up with their friends and being “in the club” of homeowners,” says CEO Daniel Hegarty.

“Home ownership can be an integral part of supporting social mobility, not least due to the fact that home owners are more likely to remain in a property longer than the average renter,” adds Mitesh Patel, CEO of property technology firm Engage.

“For renters this creates a feeling of disconnect with their neighbours and local community.

“Millennials, who have been confirmed as the generation destined to rent for longer, are feeling the impact stronger than any other group. Our own research recently revealed over a third (36 per cent) of millennial tenants feel disconnected from their communities – more than another age group.”

“The UK’s housing crisis, which has priced millions out of owning a home of their own, will continue to fuel the UK’s social and economic divide unless we start to provide renters with the same sense of ‘belonging’ as home owners. If this issue is not addressed by landlords, it could leave more people feeling disconnected simply because they don’t own their home.

None of this means there aren’t benefits to renting of course.

They aren’t obliged to put all their savings into what we often forget remains a relatively high risk financial basket for example, nor are they restricted in terms of mobility as they develop careers, says Michael Ball, Professor of Urban and Property Economics at Henley Business School, who points to examples of very positive attitudes towards renting in countries like the USA and Germany.

“But we have two very British issues,” he warns. “Entering home ownership is much cheaper than renting and because renters tend to only stay in one place for 18 months, landlords have high administrative costs that are passed on to their tenants along with the taxes they pay.

“There are huge tax breaks for homeowners, who don’t pay anything against the equity in their home or the rise in prices. They’re the biggest tax breaks anyone will receive over the course of their life.

And with no changes to the tax system or a significant increase in house building on the cards, this is only going one way, he suggests.

“If income rises, demand for housing goes up. But with no houses being built, real house prices rise by around 3 per cent a year over time. Homeowners – resisting suburban expansion despite the fact that just 1 per cent of England is covered in housing excluding gardens – are locked into that [expectation].

“That means the growing number of renters will continue to pay progressively higher rents.

“The financial divergence will continue unless politicians change their attitudes towards both house building and the tax system.”