Millennials and the Housing Ladder: A Turning Point?
BBC News Analysis
By Dharshini David, Raphael Sheridan, and Jess Carr
Leaving education, getting a job, buying a home, and starting a family—a path once considered routine for previous generations is now a distant dream for many millennials. But is the tide turning?
The Challenging Landscape
Today’s young adults face significant hurdles when it comes to owning their first homes. While those born in the UK during the mid-1990s have roughly a 25% chance of homeownership, their parents’ and grandparents’ generations had much higher rates—nearly twice as high for the 1990s cohort and even more so for previous generations.
Factors Behind the Shift
One primary factor contributing to this trend is the persistent outpacing of income growth by property prices over several decades. The following chart, illustrating housing economist Paul Cheshire’s analysis, starkly compares egg prices with house prices over the past 71 years.
Changes in mortgage markets play a role, but the core issue lies in insufficient housing construction. The UK government previously estimated the need for an additional 300,000 dwellings annually to keep up with population growth and changing household preferences. However, actual new home construction has lagged significantly—failing to reach 300,000 per year for at least three decades.
Cost Drivers
Several factors drive the cost crisis:
- Inflation: The price of raw materials like land, timber, steel, plasterboard, concrete, and insulation has risen in line with general inflation since the 1990s, reaching a new peak during and after the COVID-19 pandemic.
- War Impact: The war in Ukraine and Iran has further exacerbated costs by increasing energy prices for manufacturing these materials and for construction itself.
- Skilled Labor Shortages: Pre-pandemic, many construction firms struggled with labor shortages due to Brexit, exacerbating cost challenges.
Analysts predict that the cost of building a home could rise by another 15% in the next five years, with a £150,000 property from 2015 potentially costing £230,000 today.
Navigating Planning and Uncertainty
Strict environmental and safety regulations, while vital, also contribute to construction costs. The unpredictable nature of demand has further discouraged some housebuilders.
Deposits for homes have reached tens of thousands, varying significantly across the country. For young people paying rent, saving for a deposit becomes increasingly difficult. Many are opting to live at home and manage lower housing costs to accumulate savings.
A Glimmer of Hope
However, signs suggest that the housing market may be reaching a turning point. In recent years, house prices have risen more slowly in comparison to wage growth, making it easier for prospective buyers to save. This shift has impacted the ratio between house prices and average incomes, potentially offering some relief for first-time homebuyers.
