According to the report, just 1 in 4 middle-income young adults own their own home - down from 2 in 3 twenty years ago.
In 1995–96, 65% of 25 to 34 year olds with incomes in the middle 20% for their age owned their own home. By 2015–16, just 27% of that group owned their own home.
This group of young adults have after-tax incomes (including the income of a partner) of between £22,200 and £30,600 per year. A third of them are university graduates, while 30% left school at 16. Three-quarters of them live with a partner, and around 60% have children.
These are some of the key findings from new IFS research looking at how and why homeownership rates have changed for young adults over the past twenty years.
Key findings on the falls in homeownership for young adults include:
Those born in the late 1980s are much less likely to be homeowners in their late 20s than their immediate predecessors. 25% of those born in the late 1980s owned their own home at the age of 27, compared to 33% for those born five years earlier (in the early 1980s) and 43% for those born ten years earlier (in the late 1970s).
While homeownership for young adults has fallen furthest in the South East, it has also fallen in every region and nation in Britain. The proportion of 25 to 34 year olds who own their own home has dropped by 32 percentage points in the South East (from 64% to 32%) and by over 10 percentage points in every region and nation of Great Britain.
The homeownership rate of middle income young adults is now closer to those with low incomes than those with high incomes. 27% of middle income 25 to 34 year olds owned a home in 2015-16 compared to 8% of those with low income (lowest 20% for their age) and 64% of those with high income (highest 20% for their age). Twenty years ago, middle income young adults had homeownership rates much more similar to high income young adults.
Andrew Hood, a Senior Research Economist at the IFS and an author of the report, said: “Homeownership among young adults has collapsed over the past twenty years, particularly for those on middle incomes – for that group, their chances of owning their own home have fallen from 2 in 3 in the mid-1990s to just 1 in 4 today. The reason for this is that house prices have risen around seven times faster in real terms than the incomes of young adults over the last two decades.”
Will Handley, CEO of HomeRenter, an online lettings platform, had this to say: “The private rented sector needs to be modernised to accommodate for the growing number of young adults renting. The rental market needs to make sure it doesn’t price out people too. We recently found less than half (45%) of tenants are happy renting with unreasonable letting admin fees being a top gripe (42%). 70% of tenants said they would prefer to rent direct from a landlord suggesting a desire to cut out the middle man estate agent. The reality is young adults are used to a digital world and traditional estate agents have failed to tap into this. Proptech is filling the void, enabling landlords and tenants to connect directly online and cut out estate agency fees, reducing costs for all parties. In addition, the rental market should be more geared up towards helping people work towards owning their own property by enabling rent payment history count towards credit scores.”
Simon Heawood, CEO at Bricklane.com comments: “It is important to address the crucial first step of getting on to the property ladder - saving up for a deposit. The recent government cut to stamp duty, while a step in the right direction, has not gone far enough and does not help those still saving for that first deposit. With the average deposit for first time buyers in the UK at £33,000, and an average wait of 8-10 years to reach it, it’s clear that much more needs to be done to help people on their journey.
As ISA season approaches, first time buyers will be considering the best way to save so that they can make their money go further, reducing their waiting time to get on the first rung of the ladder. Even faced with an interest rate rise on the horizon, saving in cash offers little reward. Our research shows that first time buyers can save up for a deposit five years faster by putting their money into property with a property ISA.”
