The government needs to implement a root-and-branch overhaul of the way housing is taxed and regulated to address the ‘crisis’ facing young people as they struggle to buy or rent property, a new book proposes.
In addition to greatly increasing the supply of social housing, ministers should introduce a capital gains tax on the sale of all homes, carry out long-overdue reforms to council tax so that owners of large houses pay more, and regulate the rental sector much more actively.
While such measures may be controversial in the short-term and are likely to trigger falls in house prices, without such radical steps a ‘disastrous’ set of housing policies will continue to leave 20 and 30-somethings struggling to fund the roof over their heads.
These are central arguments of ‘The Crisis for Young People: Generational Inequalities in Education, Work, Housing and Welfare’, a new book by professor Andy Green of UCL Institute of Education (IOE).
The book surveys the challenges facing ‘millennials’- young adults born after 1979- across a range of aspects of their lives, warning that they may become the first generation since Edwardian times not to match the living standards of their parents.
It states that housing is the ‘biggest single barrier to young people getting on with their lives and taking the traditional steps towards adult status’. It is the most obvious manifestation of stark inequalities between the generations.
The ‘inexorable’ rise in house prices – they climbed by a factor of more than six from 1983 to 2007, and then rose again after the crash of 2007-8 – has left most younger people unable to get on the housing ladder.
In the 1970s and early 1980s, when younger members of the baby boomer generation were buying their first homes, they cost an affordable two to three times their average incomes.
Now the average two-bedroom apartment costs seven times the average earnings of 25 to 29-year-olds.
Based on analysis of data from the UK Household Longitudinal Study and its predecessor, the British Household Panel Survey, the book shows how the proportion of 18 to 34-year-olds owning homes has declined from 46% in 1991 to just 25% in 2013, while the proportion living with parents or renting privately has risen sharply.
The overall increase in property values has hugely benefited older generations, at the expense of the young, the book argues.
For example, the real value of private housing, even after discounting any investment in renovation by householders, rose by well over £1tn in real terms in the period from 2000 until the 2007 financial crisis.
In 2008 the under-35s owned only around 3.2% of this wealth. The increase in property values, the book argues, therefore represented a transfer of wealth from the future generation of home buyers to the existing 35-plus generation of home owners roughly equivalent to UK GDP before the crisis.
The decline in homeownership has affected all categories of the workforce among the young. However, those in unskilled occupations, and those with parents in this category, have seen their chances of ownership decline much more sharply than those working in, or with parents who worked in, professional jobs.
This means that while housing was often a route for social mobility for baby boomers, for millennials this has virtually disappeared.
Young people have also been hit by a reduction in the availability of social housing and by a surge in the cost of rents.
This has been felt especially keenly in cities in southern England where house prices are high. Tenancies are also often insecure.
Professor Green argues that the UK’s private rental market, “one of the most deregulated in Europe”, is “not fit for purpose”.
The book also takes aim at February’s housing white paper, which seeks to stimulate a boom in private house building by relaxing local planning regulation and providing incentives to small development companies.
But the policy, says Professor Green, will not solve the problem of the shortfall in affordable housing – even if the government has diluted its definition of affordable to 80 percent of market value, which currently equates on average to over six times average incomes.
The problem, he says, is not that we have a deficit of homes. There are more rooms per person and housing units per household than ever before, but many are in the wrong place and too many are being bought by landlords and investors.
The real tragedy is the lack of genuinely affordable homes, and this cannot be solved through market provision since developers have an interest in keeping prices high.
The only solution to the supply problem, he says, is to build more social housing and extend shared ownership schemes.
With house prices and rental charges having soared mainly because of a combination of favourable tax regimes towards ownership and lax regulatory control, the book advocates a combination of measures which will both reduce house prices – which will benefit younger people – and raise extra revenue for the Treasury.
Home owners are not currently charged capital gains tax on the sale of their main dwelling, a situation Professor Green argues is wrong given that houses are widely seen as investments.
He does not say what the level of capital gains tax should be but estimates that a charge of 30% on the profits from all sales would have raised some £24bn a year over the period 2010 to 2015, or “close to what the government currently spends on secondary education”.
Council tax is currently ‘regressive’, the book adds, with the most expensive properties paying only three times as much as the least expensive, even though one may be worth up to 100 times more than the other.
It advocates introducing new property bands to the tax and ensuring that those in the top bands pay perhaps ten times more in tax than those in the bottom.
Professor Green also calls for a new Housing Act, which would re-establish fair rent tribunals in big cities, provide longer notice periods for tenants and make it mandatory for all landlords to be licensed and for councils to inspect their properties regularly.
Professor Green said: “Britain’s disastrous housing system is undoubtedly at the heart of the problem of intergenerational inequalities. Unless radical change comes, opportunities for an entire generation will be constrained throughout their lifetimes.”