Rising rents mean more millennials are stuck where they grew up as the financial gain of ‘going to the city’ sees a dramatic decline.
The extent of the decline is tracked in a new report from the Resolution Foundation which reveals the number of people aged 25 to 34 starting a new job and moving home in the last year has fallen 40% over the last two decades.
And private rents have risen fastest in higher-paying areas of the country – rising by almost 90% in the highest paying areas, compared to just over 70% in the lowest paying.
Even moves over short distances are barely worth making, the data shows.
“Young people today are often stereotyped as being footloose when it comes to work,” said Lindsay Judge, senior policy analyst at Resolution.
“But in fact they are moving around for new job opportunities far less frequently than they used to. A key reason why people move around for work is the lure of a bigger salary. But increasingly those pay gains are being swallowed up by high housing costs.”
The findings came as the Affordable Housing Commission releases research that found 43% of all renters were now facing affordability problems and that 5.5 million renters were currently unable to buy a home of their own.
LGA housing spokesman Cllr Martin Tett said the report again demonstrated the need for Government to use the Spending Review to give councils powers to “build the right homes in the right places”, address local skills gaps and adequately resource planning departments.
“The housing crisis is forcing families and young people to make difficult choices and in the process is holding back growth, this report reveals the extent to which this is impacting on the opportunities for young people unable to move.
“In order for local communities to thrive, councils need to be at the heart of any decision-making to support the growth of good jobs and the rights skills for young people,” he said.
Examining the fall in job-plus-home mobility, the report focuses on three possible economic explanations:
- Whether the ‘push’ of a lack of employment has diminished over time.
- Whether ‘pull’ of more buoyant areas fallen apace
if the gap between earnings across council areas has widened over time, the benefits to moving to better paying areas will have grown too.
But the report shows that has not been the case.
While the earnings uplift of moving is often still very considerable, the difference in the average ‘wage premium’ achieved as a result of such a move has fallen since the turn of the century.
- Whether changing housing costs have acted as a headwind or tailwind when it comes to moving area for work.
The report finds the propensity of young private renters to move home and job has fallen by two-thirds between 1997 and 2018, and suggest that this partly reflects the fact that private rents have risen consistently faster in higher-paying areas of England.
Rents have risen by almost 90% in the highest-paying 30 per cent of local authorities over the past 20 years, compared to just over 70% among the 30% lowest paying places.
As a result, not only has the earnings boost of moving to a more productive area diminished as a result of closing wage differentials; so, too, has the broader living standards uplift once housing costs are taken into account.
To the Foundation, findings about the way rising housing costs are determining the behaviour of younger renters in particular is a “real cause for concern.”
The lack of Office for National Statistics (ONS) data on private rents at a local authority level, or back further than 2005, is acknowledged by the Foundation as a constraint that obliged the o construction of its own index of private rents at the local level.
This exercise started with the Hometrack data, from which the Foundation calculated a typical private rent for each local authority in 2018, by taking the weighted average of the medians for properties with different numbers of bedrooms.
This allows for a mix-adjust to reflect the fact that different areas have a different stock profile.
The Foundation then indexed these ‘typical’ 2018 rent levels back as follows:
- Hometrack data (applying the same approach to create a typical private rent for each local authority) to index private rents back to 2014
- Regional trends taken from the ONS Index on Private Housing Rental Prices (IPHRP) between 2014 and 2011
- Index back using information on median rents in broad rental market areas used to set the Local Housing Allowance, mapping these areas onto local authorities;
- Relying on the IPHRP at the regional level between 2011 and 2006
- Using Rent Officer data on the private rent midpoint in each local authority between 2006 and 1996
To test how well the index ‘fits’ with the regional ONS data available back to 2005, the Foundation constructed a simple average of its rent series across local authorities in both England as a whole and in London.
The findings suggested that the local rent estimates provided a “reasonably good fit” to regional and national trends.
Responding to reports, David Smith, Policy Director for the Residential Landlords Association said: “The biggest threat to rent levels are the policies being pursued by the government which are choking off the supply of homes for private rent as demand is increasing. We warned Ministers that this would happen but they have not listened.
“Instead of attacking the private rented sector we need pro-growth policies that recognise the need for more homes of a good standard and at an affordable rent.
“Making renting less attractive for landlords will not make a substantial difference to the availability of property. We must focus on building more homes to address this.”
Further adding comment, John Goodall, CEO of Landbay said that historically, desirable locations are likely to hold a “rent burden” that may make living costs “insurmountable.”
“Young professionals now need to weigh up a variety of factors, including commuting length, travel costs, and above all rent. This is especially true if they hope to save and invest, with the goal of achieving that first step onto the property ladder in the future”, he said.
“Housing is a key area of financial wellbeing”, added Jeanette Makings, Head of Financial Education at Close Brothers.
“There seems to be a gap between perception and reality. While there’s confidence around affordability, a huge proportion of people’s salaries are going on housing costs”, she said.
“All of these issues can be improved by a solid financial education programme, supporting employees in their ambitions be they short or long term.
“Employers can help employees in this respect, improving their financial health and creating a happier and more productive workforce”, added Makings.