The Housing Ladder: A Perpetual Staircase for Millennials

The notion that it’s getting easier for millennials to buy a home is a misleading narrative that glosses over the complexities of the housing market. House prices have indeed risen more slowly than wages in recent years, but this trend barely scratches the surface of the difficulties prospective first-time buyers face.

A comparison of house price and egg price inflation since 1948 highlights the stark contrast between previous generations’ experiences and those of millennials. According to a chart published by Paul Cheshire, while egg prices have risen steadily over the past seven decades, house prices have surged ahead at an alarming rate. This dichotomy illustrates the fundamental issue at play: property prices have consistently outpaced incomes, creating an unbridgeable gap for young people seeking to enter the housing market.

The government estimates that 300,000 new dwellings are needed each year to keep pace with population growth and a shift towards smaller households. However, only 208,000 new homes were added last year – a significant shortfall. The reasons behind this disparity are complex, but inflation has been a major contributing factor.

Land prices, builders’ wages, and materials have all skyrocketed in recent years, driving up the cost of building a home. The war in Ukraine has exacerbated these issues, pushing energy costs higher for manufacturers and construction companies alike. Brexit had already taken its toll on the industry before the pandemic, with more than one in five construction firms struggling to find skilled staff.

As a result, the cost of building a home has increased significantly – a £150,000 home in 2015 now costs over £230,000. Analysts warn that prices could rise by another 15% in the next five years. Planning regulations and uncertainty surrounding them have also deterred some housebuilders from entering the market.

The deposit required to buy a house has become an insurmountable barrier for many young people, with tens of thousands needed upfront. Saving for a deposit is particularly difficult when private rents soak up a third of prospective buyers’ incomes. It’s little wonder that more and more young people are opting to live at home, sacrificing their independence in the process.

Despite these challenges, there are signs that things may be slowly improving. House prices have been growing more slowly than wages in recent years, making it slightly easier for first-time buyers to save. Some lenders are willing to take smaller deposits and offer larger loans with longer repayment times. Mortgage payments relative to wages are also moving back towards the long-term average.

However, these tentative steps forward will ultimately be for naught unless more homes are built. The government’s plans to streamline planning processes and allow more homes to be built on the green belt are welcome, but they represent only a small part of the solution. What’s needed is a comprehensive approach that incentivizes builders to commit with confidence to building.

The key to unlocking this problem lies in creating an environment where housebuilders feel secure in their investments. This requires a nuanced understanding of the industry’s needs and a willingness to address the root causes of the housing crisis, rather than just its symptoms. Until fundamental changes are made to the way we approach homebuilding, the housing ladder will remain a perpetual staircase for millennials.

The clock is ticking, but the government’s response has been woefully inadequate thus far. The results of their efforts will take years to come through, and it remains to be seen whether they’ll be enough to stem the tide of young people being priced out of the housing market for good.