“I have been looking for a flat for around six months now, I am being forced out of the area I have grown up in.”
Ian Perkins is a 26 year old estate agent who is still living in his family home. He is one of many young individuals in London who are struggling to get on to the property ladder. With the government’s recent decision to scrap the first time buyer tax, it appears that progress is being made for young buyers. However, the overwhelming notion is still that not enough is being done by government to address the ongoing housing crisis.
“I have a job that pays above the average salary and still can’t afford to rent a so called affordable home,” says Perkins.
Wage is an important factor restricting young people from getting on the property ladder. There is a significant gap between earnings and house prices. The average house price in London is £496,000, with the average wage being £34,200 a year. This is a record high with house prices being 14.5 times higher than earnings.
A report carried out by The Resolution Foundation found that the current generation are at “risk of becoming the first ever generation to record lower lifetime earnings than their predecessors.”
A writer for the Telegraph, Teresa Hunter disputes this and states that “young people in their 20s had a median income of £25,378 and £28,316 at 30. This, when uprated to today’s prices, compared with around £17,029 in 1986 for those aged 30.” Although property prices would have been less in 1986 than they are today.
As well as wage, rent is another issue preventing young people from owning a home. A report by PricewaterhouseCoopers (PWC) showed that buyers may have to save for 19 years in order to buy their first home. Compare this to 2000 where the same group would have been able to buy a home after saving for just six years.
Furthermore in 1990, only two years of saving would be required. London is set to have the biggest increase in private renting, with a forecasted rise of 24.4 percent between 2000 and 2025. The current trend is that home ownership is falling and private renting is increasing.
Another restriction for the capital is that the government is not building enough homes to match the demand. Currently London is building around 20,000 new homes every year, which is significantly below the target. According to Sadiq Khan London needs to be building 50,000 homes every year for the next 25 years. London currently relies on a small number of large developers in order to produce their homes. Khan argues that these companies are not enough in order to meet the target and there needs to be more involvement from housing associations, councils, institutional investors and small builders.
The increasing investments into property in London is forcing property prices to increase. Foreign investors are buying up prime land, in some cases even before property development has begun. This results in huge areas of land being owned privately, therefore unable to be built on by the government or council. With Brexit looming, foreign investors are becoming anxious about future investments.
The scrapping of the stamp duty for properties up to 300,000 pounds by the current Conservative government is a step in the right direction, yet critics say that it is ultimately insignificant. Shelter state that “the truth is that stamp duty just isn’t very important” and that most homeowners will end up paying more in estate agent fees. The average first time buyer deposit for London is £107,000, which dwarfs the amount that would be saved through the scrapping of stamp duty. The scrapping of stamp duty has no effect on housing prices, rather the money saved is most likely to still be invested into the property. Critics argue that this will therefore increase property prices. The price of properties needs to come down and with increased competition and population this is unlikely. Brexit could result in a decline in foreign investment, as a result creating more affordable housing for British citizens.
On the 2nd October 2017 the government announced a further investment of £10bn in the Help to Buy Equity Loan. They state that this funding could help 135,000 people to buy homes by 2021. The Help to Buy scheme show that between 2013 and the end of June 2017, 134,558 properties have been bought. Just over 80 percent of these properties were bought by first time buyers. The scheme allows individuals with a five percent deposit to take out a 40 percent loan in London and the rest is subsided through a mortgage. For the first five years the individual does not have to pay any fees, although after five years the individual has to pay fees. These fees rise in accordance to inflation. After 25 years or when selling the house the amount that has to be repaid for the loan, matches what the property is currently worth. The scheme may encourage first time buyers to buy a home, but the buyers are limited to certain new build homes and the value of the loan will increase. This inevitably is the only option for a number of first time buyers in London, as it is the only way they can begin to afford a property in London.
The housing crisis stems from the miscued balance between supply and demand. London being the capital of UK and described as the financial capital of the world, makes it an extremely desirable place to live. London still has the majority of jobs in the UK, making it a popular destination for graduates. However with the constant increases in property prices and rent for more and more young people it is becoming a destination that they simply cannot afford to live in. Perkins said: “I feel like the current government are neglecting the younger generation and caving in to private businesses, putting profit before housing. I am experiencing a catch 22, if I moved outside of London I would no longer have my job but other than living with my parents there really are limited options for me.”
Looking forward to the future London is in desperate need to find a long term solution to London’s housing crisis, in order to no further alienate a whole generation. London mayor Sadiq Khan said that “We’re starting to fix London’s housing crisis. But the government has to help.” The London housing crisis has been a social problem for decades and stems from inefficient housing policies, a lack of investment in new housing and a mortgage market shattered by the financial crisis. In the unstable present climate it is hard to make any predictions on where the property market is heading, let’s just hope it is favourable towards the younger generation.
[Feature image credit: Wikimedia Commons]