As a result, the attitudes of the political parties towards solving the crisis are being given plenty of airtime, and could have significant impact come May. But will the policies being bandied around have enough of an impact, or are they merely plays for votes?
State of the nation
The proportion of housing owned by the occupiers has steadily fallen after first-time buyer lending slowed significantly following the financial crash. In the post-crisis era, a sluggish economy, with savings rates – and wages – outpaced by inflation means that borrowers now find it increasingly difficult to save for a deposit for a first home. They have to wait longer, and save harder, to get on the ladder. And their patience is running thin.
At the same time, a shortage of housebuilding has pushed house prices upwards quickly – driving the average deposit needed even higher, despite higher LTV lending recovering somewhat. This now sits at £25,080 according to Your Move and Reeds Rains’ latest first-time buyer research.
There has been a concentrated impact on one generation. The English Housing Survey revealed just 36% of 25-34 year olds owned their own home in 2013-14, compared to 59% before the crash (2003-04). Simultaneously, the proportion in this age range who rent privately has more than doubled from 21% to 48%.
However, the aspiration to become homeowners remains undimmed among Brits. In October 2014, 93% of tenants registered with Your Move and Reeds Rains wanted to become homeowners.
Rise of the boomerang generation
This has given rise to the ‘boomerang generation’ – the term coined to describe those who have returned to live with their parents in order to save money towards a deposit. One in four young adults (aged between 22 and 30) are now living with their parents, according to the Institute for Fiscal Studies (IFS).
The IFS research also highlights the extent to which young adults’ salaries were disproportionally hit by the crisis. Their median income is projected to be 7.6% lower in 2014–15 than in 2007–08, although these incomes are now finally starting to recover: up 2.5% from 2012–13 to 2014–15.
Offering children a place to stay while they save hasn’t been the only knock-on effect for parents. Many aspiring young homeowners have raided the Bank of Mum and Dad in order to boost the size of their deposit, and thus get access to the cheap rates that abound for others.
However, this phenomena may be drawing to a close. The upcoming pension freedoms will allow Brits to withdraw cash from their pension, rather than being forced to invest in annuities, and could be positive for the buy-to-let sector Perhaps this will further spur the rise of the ‘Dadlord’, rather than parents gifting their children money for a deposit?
Hargreaves Lansdown predict that as many as 400,000 people may cash in their pensions this year, with 50,000 planning to invest in property – in particular buy-to-let property – as a result of the new pension freedoms.
And there is another subtlety to the retirement-finance revolution, as these new landlords will compete with first-timers for the affordable property stock on the market, meaning overall demand is higher than ever.
How do the parties plan to tackle this crisis?
Largely, by spurring more housebuilding, although some have argued that the Help to Buy ISA revealed in the Budget will drive supply without directly supporting demand.
David Cameron has promised to make 200,000 new homes available to first-time buyers by 2020 if the Conservatives win the General Election in May, in an extension of a coalition plan to create 100,000 new homes.
The Starter Homes scheme, announced in February, offers a discount of up to 20% for first-time buyers in England who are under the age of 40. Homes worth £250,000 outside London – or £450,000 in London – would be eligible for the scheme. It also aims to encourage development of ‘brownfield’ sites into residential property, by allowing house-builders to waive the fees they would normally pay to local authorities when building on brownfield sites, amounting to at least £45,000 per dwelling.
Cameron has also said he will do all he can to keep mortgage rates low if the Conservatives win, giving some financial relief to new buyers.
Meanwhile, Labour has promised to build 200,000 new homes every year by 2020. The party would give local authorities new borrowing powers to fund projects and could allow councils to penalise firms “hoarding” land if developments do not begin within a fixed period.
The Lib Dems aim higher still – for 300,000 new homes a year by 2020, helped by the development of 10 new garden cities. They would champion smaller developers, by ring-fencing available land for them, with councils asked to identify suitable land for development.
UKIP says brownfield developments should be prioritised, with reduced VAT and new homes exempt from stamp duty when they are first sold. They would aim to build a million homes on brownfield by 2025. And they want to protect the countryside, proposing to scrap HS2 and finish the EU wind farm project.
And finally, the Green Party have pledged to build 500,000 new social homes for rent by cutting buy-to-let mortgage interest tax allowance, although their leader Natalie Bennett has been called out for failing to explain how much the scheme would cost and how it would be paid for – suggesting it could be over-ambitious.
And what do first-time buyers want?
The affordable housing conundrum is now so severe that it is the most pertinent issue for today’s tenants. The Your Move and Reeds Rains research reveals housing ties with healthcare as the issue most likely to influence their vote in the General Election.
When asked what policies they would accept to encourage more housebuilding, the most popular choices were introducing new legislation to prevent land-banking (which 41% would accept) and changing the use of existing buildings to residential (accepted by 37%). One in ten first-time buyers would accept building over high-streets and golf courses to help solve the housing crisis.
This shows that there is plenty of capacity for more radical thinking on housebuilding, and the current schemes touted may not make the splash required.
