“The housing market in this country is broken, and the cause is very simple: for too long, we haven’t built enough homes.” – Department for Communities and Local Government (DCLG)
No quick fix
On February 7th, the DCLG published a white paper called “Fixing our broken housing market”. The report focuses on the lack of housing supply as the primary driver behind house price growth that has far outpaced growth in the average person’s earnings. Meanwhile, the cost of renting in a number of areas now consumes over half of renters’ pay, leaving them with little spare to save towards buying their own home.
The Government is enforcing a range of measures designed to speed up development of new homes while reducing the pressure on the growing number of people for whom renting is the only realistic option. However, while these changes are certainly overdue, their impact will be far from immediate.
Living for the city
The pressure on housing supply is compounded by huge demand for big city life. Mintel Trend “Rebirth of Cities” discusses the impact of too many people occupying too little space. The cost of living is driven up, despite limited wage growth, and space comes at a premium. Home ownership has become an ideal that people often have to give up if they want to keep their stake in the urban sprawl.
The fact that people typically have to rent if they want to live closer to urban hubs isn’t necessarily a bad thing. It can provide people with flexibility and access to a wider range of options, from a single room to a whole flat to themselves. Mintel’s Marketing to Renters UK 2016 report revealed that around two-fifths of those that rent their home privately say they take pride in their home, although renters also tend to prioritise access to amenities and public transport when choosing their accommodation. With home ownership off the table, people are able to make the most of renting in big cities, which may actually be more aligned with their lifestyle and career goals.
The trade-off continues for city renters
However, Mintel research also reveals that around a third of private renters hope to buy a home of their own in the next five years, and the same proportion have concerns about the increasing cost of renting. While home ownership may be more realistic in suburban areas, city renters who still aspire to own their home in the future are faced with the extremes of a broken housing market.
Nowhere is this reality starker than in London. With space at such a premium and demand for housing so high, options for alleviating the pressure through greater supply are even more limited. Research in Mintel’s forthcoming Mortgages UK 2017 report found that one in four Millennial renters and one in three renters overall in Inner and Greater London think they will need to move somewhere else to be able to afford to buy a property. The reality is beginning to sink in. Urban renters must make the difficult choice between embracing the city life and giving up on home ownership (for now at least), or going beyond the city limits in search of a more affordable investment.
Generation Rent is here to stay
With Brexit just around the corner and a number of years before the UK housing market feels any potential effect of stimulated housebuilding, the same combination of inflated house prices and stagnant wages will continue to keep many from reaching even the first rung of the housing ladder. However, this may not necessarily be a bad thing, with people making the most of renting closer to the action while they can.
Patrick Ross is Senior Financial Services Analyst at Mintel, writing reports and analyst insights for Mintel’s UK Financial Services team. Prior to joining Mintel in 2015, Patrick worked in both the payments and insurance industries, as well as working as an analyst for a market research company.