Generation Can’t-Afford-the-Rent

//Generation Can’t-Afford-the-Rent

Generation Can’t-Afford-the-Rent

Author Mark Richards

The inability of young people to get on the housing ladder has led to the term ‘Generation Rent.’ But even rent is becoming harder and harder to afford. Is there any light at the end of the tunnel? Or will the UK’s housing crisis continue to worsen?

There was a heartwarming story in the press last week – a teenager who has lived rough for a year became the first person to move into an ‘iKozie’ – a purpose-built ‘micro home’ inspired by yachts and first-class aeroplane cabins. The homes cost just £40,000 to build and contain a bedroom, a fully-fitted kitchen, a bathroom ‘module’ and an ‘entertainment zone.’ They measure just 186 square feet (17.3 square metres). Well, I’m writing this at our dining room table: wait a minute while I go for a tape measure…

Our dining room – which is a reasonable size for a family dining room but nothing palatial – is 17 feet by 12 feet – 204 square feet (18.9 square metres).

The lucky teenager who has just moved into a home slightly smaller than our dining room is Kieron Evans who, not surprisingly, says he is “ecstatic.” The Homeless Foundation – the charity behind the initiative – sees these micro homes (which are made off-site and lifted in by crane) as a possible solution to the growing problem of homelessness.

But are they also a possible solution to the UK’s much wider housing problem: young people are struggling to buy homes – and now ‘Generation Rent’ is even struggling to afford the rent.

Rent is becoming less affordable

According to new research from the Institute for Fiscal Studies, tenants on low incomes are now spending an average of 28% of their wages on rent – up from 21% in the mid-1990s.

These tenants have been hit by substantial cuts to housing benefit – and it is likely that government support will fall still further behind the soaring costs of rent. Over the period since the 1990s, the number of people renting their home has risen from 8% to 19%, with private rents escalating steadily.

It is all about supply and demand

The housing market – whether it is buying or renting – is regulated by supply and demand. If demand outstrips supply – as it does at the moment – then prices will rise. So it is no surprise that Theresa May’s initiative to boost the ‘help to buy’ scheme has been widely criticised. If supply is limited, fuelling the demand can only have one outcome. The only way to bring down prices – for both house-buyers and those who are renting – is for the supply of homes to outstrip the demand.

“Renters are paying much more for their homes than they did 20 years ago,” says the IFS analysis, which was funded by the Joseph Rowntree Foundation. “In real terms, the average private rent in London is 53% higher than it was 20 years ago, and 29% in the rest of the country.” With social housing rents also consistently increasing in real terms, anyone who rents a property is facing a real squeeze on their living standards.

So surely there is a simple solution? We just need to build more homes…

How many new homes does the UK need?

Earlier this year the Telegraph reported the number of new homes being built in the UK was at its highest level since the financial crisis. In the first three months of 2017, just over 43,000 new homes were started, whilst 39,500 were completed – with both figures being 21% up on the same period 12 months previously. But multiply those figures by four and the full year figures are still well below the amount of new homes housing charity Shelter says that we need. “Pitifully low,” was the description used by Anne Baxendale, Shelter’s director of communications. She pointed out that in the early 1970s around 300,000 new homes were built each year – compared to the expected figure of approximately 170,000 for this year.

A report commissioned by Shelter and written by management consultants KPMG suggested that the UK needs 250,000 new homes each year. While this report was primarily directed at solving the problems of the homeless, it is also applicable to the thousands of people on low incomes struggling with steadily rising rental costs.

Plans to make housing more affordable

The report sets out some bold plans to stimulate house building and bring down prices across the board. Specifically, the authors would like to see:

  • The building of five new garden cities
  • A Housing Investment Bank to make it easier for builders to borrow and for Government to put money into the sector
  • Local authorities being allowed to spend more
  • Measures being taken to bring down the price of land
  • And a ‘help to build’ scheme, again giving help and incentives to small builders to build more property.

Is that the answer, or does the private sector have a ready-made solution? In particular, supermarket chains like Tesco?

New homes on top of Tesco

Could we all be living at Tesco Towers?

Tesco is Britain’s biggest retailer – and what do large supermarkets all have? They all have car parks and, in many cases, they have large stores with flat roofs. Now Tesco is making plans to build on its car parks and above its stores, beginning with two initial portfolios of ten stores each. The supermarket group is apparently looking at selling the ‘air rights’ to build above its stores – and as we have seen from the example of Kieron’s micro-home, building homes off-site and lifting them into place is becoming increasingly practical.

Although the initial work may be done on Tesco car parks the future is in the air, with companies like Apex Airspace – believed to be in talks with Tesco – already exploiting London’s airspace: ‘turn your roof into a valuable new asset’ as the company says on its website.

With supermarket groups having vast portfolios of land – and acres of roof space – Tesco Towers could provide a ready-made solution to the UK’s housing crisis.  Alternatively, it could be Sainsbury’s Street or Morrisons Mansions – both supermarket groups are believed to be pursuing similar schemes to Tesco.

Uncomfortable conclusions

Both rents and house prices are going up, and they are going up because of the simple law of supply and demand. The average house (now well in excess of £200,000) costs nearly eight times the average income – well up on the five or six times it used to cost. As we have seen above, people who rent are paying ever more of their income in rent. The current situation is unsustainable, and it is up to the present Government to at least address it: tinkering around the edges is no longer adequate. Next month sees Philip Hammond stand up to deliver his Autumn Budget speech: but with the Chancellor under attack from his supposed ‘friends,’ never mind his enemies, do not expect anything radical or visionary.

By | 2017-10-16T10:23:26+00:00 October 16th, 2017|Economy|0 Comments

About the Author:

A previous financial services business owner, Mark is an experienced Journalist Speaker, Speechwriter and Coach. He has written for a number of websites related to the financial sector and won numerous awards. Mark has also published a number of books.

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