This week, the Resolution Foundation published a report entitled A New Intergenerational Contract.
The report, from the think tank’s Intergenerational Commission, found that millennials (born 1980-1996) are now half as likely to own a home at age 30 as baby boomers were.
Four out of 10 millennials now rent privately at age 30 – double the rate for Generation X (born 1965-1980) and four times that of baby boomers at the same age. Millennials are now spending on average nearly a quarter of their net income on housing – three times more than the pre-war silent generation did in their 20s.
Every generation alive today has devoted a higher share of their income to housing than their predecessors. And unsurprisingly, there has been an explosion in projections of the average number of years required to save for a first-time buyer deposit.
In 1996, the number of years was three. However, by 2006 the projected number of years had increased to 11, and by 2016 it was 19. The spiralling cost means that under-45s now have significantly less space (smaller properties) than they did in the 1990s.
Separately, PwC has projected that the number of households in rented accommodation will increase from 5.4m today, to 7.2m in 2025. At the turn of the century, the figure was just 2.3m.
Alongside the report was a set of 15 policy recommendations under the title: “houses – renovating the market”. Some of the ideas for improving the lot of Generation Rent were good, some bad, but the title is misleading.
The recommendations for renovating the market completely ignore the number one solution to virtually all the housing market problems in this country: radical reform of the planning system to free up the supply of land for house-building in order to sharply reduce the price of the land on which it is built.
A staggering 90 per cent of the UK population lives on just nine per cent of the land. We do not need to concrete over the country. There is a lot of what can only be described as “grotty green belt”.
The price of land with planning permission is 100 times that of land for farming. This is one of the most grotesque distortions of the free market in the world.
An acre of farming land could sell for around £10,000, but with planning permission the valuation soars to £1m, and much more in London and parts of the south east. The end result is that land can be 40-50 per cent of the price of a new build.
Yes, builders sit on land banks, but they are themselves driven by the planning system and a shortage of new land coming on stream. Planning reform could bring about a surge in land supply, driving down the price and providing a huge incentive for developers to build more properties sooner rather than later.
It is not just more, but better properties as well. The average size of an American home is 245 square metres. In the UK, it is just 90 square metres – less than in Germany, France, Italy, Spain, and Portugal.
The planning problem is not merely quantitative – it is qualitative as well. Kevin McCloud, presenter of the television programme Grand Designs, has stated that the housing stock in the UK is made up of “identikit Noddy houses built at the lowest possible cost”. He’s right. There is no pressure for innovation and architectural creativity when any new build will sell relatively easily. Bog standard will do.
In contrast, radical reform of the planning system, entailing a surge in land supply, could herald a design revolution.
A genuine shift towards the market in housing would also prevent the current problem of the right hand not knowing what the left hand is up to. State intervention in the planning system creates an anomaly which is then addressed by a further state intervention, such as Help to Buy.
The housing market needs Help to Supply, not Help to Buy.