Collapse in home ownership amongst the young

Collapse in home ownership amongst the young

The Institute for Fiscal Studies (IFS) has found that today’s young adults are significantly less likely to own a home at a given age than those born only five or 10 years earlier. 

At the age of 27, those born in the late 1980s had a homeownership rate of 25%, compared with 33% for those born five years earlier (in the early 1980s) and 43% for those born 10 years earlier (in the late 1970s).

The falls in homeownership have been sharpest for young adults with middle incomes. In 1995–96, 65% of those aged 25–34 with incomes in the middle 20% for their age owned their own home. 20 years later, that figure was just 27%.

The IFS said the key reason for the decline is the sharp rise in house prices relative to incomes. Mean house prices were 152% higher in 2015–16 than in 1995–96 after adjusting for inflation. By contrast, the real net family incomes of those aged 25–34 grew by only 22% over the same 20 years. As a result, the average (median) ratio between the average house price in the region where a young adult lives and their annual net family income doubled from 4 to 8, with all of the increase occurring by 2007–08.

This increase in house prices relative to family incomes fully explains the fall in homeownership for young adults. The likelihood of a young adult owning their own home given how their income compares with house prices in their region is little changed from 20 years ago. But in 2015–16 almost 90% of 25- to 34-year-olds faced average regional house prices of at least four times their income , compared with less than half 20 years earlier. At the same time, 38% faced a house-price-to-income ratio of over 10, compared with just 9% 20 years ago.

Young adults from more disadvantaged backgrounds are less likely to own their home, even after controlling for the kind of job they have and other characteristics. In 2014–17, 30% of 25 to 34-year-olds whose parents were in a low occupational class (e.g. delivery drivers or sales assistants) owned their home, compared with 43% of those whose parents were in a high occupational class (e.g. lawyers, teachers or estate agents).

However, after controlling for differences in observable characteristics of young adults such as their earnings and education, the homeownership gap between those from high and low socio-economic backgrounds is much smaller, at around three percentage points.