Millennials and Homeownership: Is the Trend Changing?
By Dharshini David, Deputy economics editor, Raphael Sheridan, Economics reporter, and Jess Carr, Data designer
Leaving education, getting a job, buying a home, and starting a family—the path of previous generations seems like a distant dream for many millennials. But is it becoming easier to climb the housing ladder?
Today’s first-time buyers are less fortunate; they remain worse off than their predecessors. Born in the UK during the mid-1990s, there is approximately a 25% chance of owning one’s own home, as illustrated by this chart. The likelihood was almost double for those in their 20s in the 1990s and even higher for the previous generation.
Long-Term Trends and Challenges
The current situation is influenced by several factors, primarily the gap between rising property prices and income growth over many decades. This chart by housing economist Paul Cheshire starkly compares egg prices with house prices over the past 71 years.
While changes in mortgage markets play a role, the core issue lies in insufficient housing construction. The UK government previously estimated the need for an additional 300,000 dwellings per year to keep up with population growth and smaller household preferences. However, last year, only 208,000 new homes were added, a trend that hasn’t been seen for at least three decades.
Cost Factors and Supply Challenges
The cost of building materials, such as land, builders’ wages, bricks, timber, steel, plasterboard, concrete, and insulation, has risen due to inflation over the past few decades. The COVID-19 pandemic further exacerbated these issues, while the war in Ukraine has driven up energy costs, impacting both material production and construction itself.
Brexit also contributed to labor shortages among construction firms, with more than one-fifth struggling to find skilled workers before the pandemic. These challenges have led to a significant increase in building costs, projected to rise by another 15% in the next five years, according to analysts.
Navigating Planning and Financial Hurdles
In addition to rising construction costs, stringent planning regulations aim to protect the environment and ensure safety standards but can add expenses for developers. The combination of these factors has deterred some housebuilders.
Deposits required to purchase a home have reached tens of thousands, varying widely across the country. Saving for a deposit becomes particularly challenging when individuals are also paying rent, which typically consumes around one-third of their income. As a result, many young adults choose to stay at home and save money on housing costs to accumulate funds for a down payment.
A Turning Point?
However, signs suggest that the trend may be reversing. House prices have grown more slowly in recent years compared to wage increases, making savings easier. Some lenders are offering larger loans with longer repayment periods, and smaller deposits are also available.
In summary, while millennials face significant challenges in buying their first homes, there are indications that the situation is improving, offering a glimmer of hope for this generation’s housing aspirations.
