Sean O'Grady: This generation has to learn that there's no God-given right to a home
The banking system is in no fit state to resume the borrowing binge seen in the bubble years
Tuesday 31 May 2011
Members of "Generation Rent" are correct to think that the easy money to be made from home ownership is a thing of the past, but the fact that so many of them "aspire" to own their own place suggests they have not yet capitulated to this emerging reality.
This generation will just have to get used to the idea that there is no God-given right to home ownership or, more pertinently, the large capital gains that accrued from it in the past.
All the economic trends suggest that house price appreciation over the next few years will be modest at best. The tripling in average house prices between 1997 and 2007 will not be repeated, and may even go gradually into gentle reverse in the coming years, especially allowing for general inflation.
That is also bad news for "generation buy" – the 40 and 50-somethings of today who fondly believe their property(ies) will provide a handsome pension. They, too, may be disappointed. This is because of the dreaded "fundamentals".
First, what economists call "real incomes" won't rise rapidly, and, in the end, these are the only thing that support property values: London is twice as expensive as elsewhere because incomes are twice as high. Simple as that.
Pay rises are not keeping up with inflation, and our ability to service a hefty home loan is correspondingly weaker. Behind that is our slow-growing, uncompetitive economy. The outlook for real property demand (as opposed to dreamy aspiration) is, thus, poor.
Second, the banking system remains, shall we say, fragile, and is in no fit state to resume the borrowing binge seen in the bubble years. Just as the authorities encouraged the banks to lend too much in those years – to get the poor on to the housing ladder, ironically – now they are too cautious.
Moreover, homes are still, by historic standards, expensive, and the deposits of £20,000 or £50,000 now demanded are beyond many young people still struggling with student debts.
Yet why this sense of entitlement anyway? Nobody claims they have to own a Porsche the moment they leave college, or pester the bank of mum and dad for designer furniture. So why a flat, just another form of consumption? They wouldn't dream of sponging the rent money.
Well within living memory it was quite normal for a newly married couple (when that was more conventional than now) to move in with their parents or in-laws for a few years while they saved up for a deposit on a house. That, in turn, would require the ability to demonstrate a determination to keep up regular savings (and thus regular repayments). Only then were the funds released. Buying a home in your 30s rather than your 20s never used to be a symbol of failure. So why is it now?
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