Buying a cheap home locally is out of reach for a large proportion of young adults with a 10% deposit because property prices have hurtled so far ahead of their earnings over the last 20 years.
That is the conclusion of a major study into the barriers to homeownership in England, which has called for planning restrictions to be eased in a bid to boost housing and drive down prices for the younger generations.
Indeed, the report by the Institute for Fiscal Studies (IFS), an economic research institute, also identified a vast gulf between the younger generations looking to buy in recent years and those who got onto the property ladder in the mid-1990s.
It said the last 20 years there had been a ‘substantial fall’ in homeownership amongst young adults – which it classes as the 25 to 34 age group – who are finding it harder to save for a deposit and face caps on mortgage borrowing.
House price rises
They have been hindered by average house prices, which have soared by 173% since 1997 way ahead of young adults’ incomes, which increased by only 19%. In London the situation is worse, with homes rising in price by 253%.
It’s no wonder then, that in 2016, and even with a 10% deposit, only around 60% of young adults would have been able to borrow enough money to buy one of the cheapest homes in their area.
This is in stark contrast to 1996 when over 90% of 25 to 34-year-olds would have been able to purchase a home locally by borrowing four-and-a-half times their salary – the maximum lenders will allow.
Polly Simpson, a research economist at IFA and a co-author of the report, said: “Big increase in house prices compared to incomes over the last two decades mean that it is increasingly difficult for young adults to get on the housing ladder, even if they do manage to save a 10% deposit.
“Many young adults cannot borrow enough to buy a cheap home in their area, let alone an average priced one.
“These trends have increased inequality between older and younger generations, and within the young generations too.”
Researchers also observed regional differences, identifying greater challenges in London than in other parts of England. Indeed in the capital 95% of young adults would need to save at least six months income for a deposit on an average priced house compared to over half in Yorkshire and the North East.
Planning constraints
Identifying solutions, researchers suggested planning restrictions should be loosened in order to allow more building work to boost housing available.
Jonathan Cribb, a senior research economist at IFS and a co-author of the research explained: “The most economically productive and wealthiest parts of England – London and the South East – are those with the most restrictive planning constraints.
“It is unsurprising that these areas have also experienced the biggest house price increases. Increasing the responsiveness of construction to house prices is a necessary part of the solution, particularly in these areas”
He said this would not only help reduce house prices and boost homeownership it would reduce rents, benefiting renters – including those who would never own their own home.
