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Millenials And The Property Ladder: Excluded On Prices or iPhones and Brunches?

written by Bella Palmer

The plaintive cry of millennials bemoaning their fate when it comes to the prohibitive expense of owning their own home is one that is often heard. And, at least at first glance, it would seem that the complaint does not lack foundation. Recent figures published by the Institute for Fiscal Studies show that the percentage of 25-34 year olds that own their own homes fell from 55% to 35% between 1997 and 2017. Against the backdrop of house prices rising 173% compared to a rise in real incomes of only 19%, it seems obvious why. Millennials have simply been priced out of home ownership.

The damning statistics go further. Back in 1996, 90% of young adults in what would, in 2018, be referred to as the millennials demographic, would in theory have been able to buy a home, even if a small one on a shabbier street, in the approximate area where they lived. That drops to somewhere around the 60% mark, for even the cheapest piece of real estate on the market, a little over twenty years on. Those figures don’t even take account of the need to get a bigger, both in terms of real value and as a percentage of the sales price, deposit together.

In November 1998, the average UK house price was a little under £74,500 according to Land Registry statistics. Today, it’s a little under £233,000.


Source: Land Registry

It seems like an open and close case. It is much more expensive for millennials to get onto the property ladder compared to the equivalent generation 20 years earlier.

Would Millennials Be Able to Afford A House If They Cut All the Brunches and iPhones?

The counter argument to the plight of the millennials when it comes to home ownership is “20 years ago we could afford own our own home because we didn’t spend all of our money on tech, poached egg and avocado brunches and long weekends to Barcelona, Prague, Berlin and Budapest 4 times a year”.

Back in 1998, this writer was a second year university student. I may have just acquired my first mobile phone, or it may have been a year later. Either way, it was a Motorola brick and I’d top up my minutes and texts credit with £10 vouchers, making them last around a month each if I could. Holidays, for me, would be 4-6 weeks backpacking once a year, sometimes combined with teaching English as a volunteer for a couple of weeks, in destinations like Eastern Europe (which back then genuinely did resemble the caricature comedy film EuroTrip when it came for bang for the buck when changing pound sterling) and the USA. I’d be on a shoe string budget acquired from a combination of part-time work during term and full time over holiday and setting aside some of my student loan. But I certainly still got around and was never thirsty for a beer or dying of hunger, even if meals might be limited to once a day towards the end.

I wasn’t really familiar with the holiday habits of the young professional at that point but it was just before the budget airlines revolution and among the families of my friends from school, holidays were also generally a once-a-year package affair to Spain, Portugal or Greece. The fancier families might have gone to the south of France. Brunches weren’t a thing and eating out was a special occasions affair rather than a weekly, or thri-weekly as the case now often seems to be, staple.

All-in-all, looking back, I feel like we all spent less money on ‘stuff’ outside of the essentials and some leisure time entertainment ranging from the pub to hiring a video with friends or going to the cinema. So maybe that’s where all the millennials’ money is going? I’m pretty sure the average 28-year old didn’t have 5-10 subscriptions a month for things like Netflix, Spotify, mobile phone package and Bikram yoga draining their bank account on a monthly basis. They also didn’t have to have a new outfit for every Instagram ‘Story’ published.

However, totting up what money was spent on 20 years ago through the lens of rose-tinted nostalgia isn’t really a scientific approach. The sweeping insinuation all millennials blow their salaries on Netflix, social media-induced sessions at TK Maxx, eating out 3 times a week and buying £3 coffees on the way to work every day is also unbefitting of someone still on the right side of 40 by a healthy couple of years myself. So what does the data, both official and custom gauges, say?

Averages Salary, Disposable Income and ‘Optional’ Expenses Comparison to House Prices: 1998-2018

In 1998, the average weekly wage in the UK was around £280. That adds up to a little over £14,500 a year. With average house prices at £74,500, that means a multiple of a little over x5. ONS stats say that the average UK annual salary is around £27,300 today. Average house prices are £232,800. That’s a multiple of x8.5.



Source: The Guardian

The chart above, published in The Guardian newspaper, compares median house prices to median gross annual UK incomes for England and Wales between 1997 and 2016. That roughly coincides with my own more amateur sleuthing’s 1998-2018 period. It also, insightfully, breaks the affordability ratio down by region. What becomes clear is that, while property has become comparatively more expensive right across the country, the gap has become far wider in some areas. Unsurprisingly, London, the South East of England and the East of England show the greatest discrepancy in relative affordability of property over 20 years.

But aren’t we generally better off than previous generations? Homes full of aesthetically pleasing Ikea furniture, which makes it cheaper to stylishly fill a living space, modern tech, more clothes, more trips abroad and more eating out and all of those subscriptions? Most millennials would probably admit they could scale back on non-necessary expenditure. If a deposit of 10% to 20% on a property needs to be saved up, that’s £23,000 to £46,000 for the average property. In fact, in 2018 the average deposit has been a little over £33,000 according to data from Halifax and the Council of Mortgage Lenders. For first time buyers the figure is around £23,000. A decade ago the average deposit was £19,300.

As a percentage of average household income, an article in The Independent puts the average 1990s deposit at around a quarter of average household income in the 1990s. Now, twenty years on, that has risen to significantly more than half of the average household income. Even the most brunch and Instagram-happy millennials don’t spend 25% of their income on avocado on toast, Netflix subscriptions and the rest. Ok, maybe the most extreme cases do but every generation has its quota of those who are profligate with money. The rest, not by a long way. The fact of the matter is, and all of the data points to this conclusion, it is significantly more expensive for today’s young professionals to buy their first property.

Is Property Becoming More Expensive Such a Bad Thing?

The silver lining for millennials is that property may have become more expensive in relation to incomes but many of the other goods and services enjoyed in plenty are more accessible, better quality and more interesting than ever before. Cars are cheaper, as are taxis and any kind of digital entertainment is relatively cheap. Eating and going out is much cheaper in comparison to real incomes and so are clothes, and holidays. Though there is much grumbling about the NHS, broadly speaking, life-saving medicines and treatments we now take for granted are also available to the general public.

Perhaps it’s a change of mentality that is required and an acceptance that owning a property is not the be all and end all. In many parts of Europe, especially in Germany and other central European countries, home ownership has, at least in modern history, always been much lower than in the UK. Much of the British obsession with owning property is also based on how much property prices have risen over the past few decades. Will that continue? Almost certainly not.

Almost every expert agrees that the affordability ceiling across the country has already been reached, breached or is within touching distance. So if property prices are not going to rise with anything like the rates of the past 20 years, is it so imperative to own property? Maybe too much of the UK’s capital is tied up in bricks and mortar and we’d all be better off, including millennials, if millennials weren’t struggling to save for a deposit for 5 years or more.

We’ll get used to the idea of not owning cars in 10 years or so as self-driving vehicles make private-transport-as-a-service the more economically attractive option. Those who have owned a car for decades will find that concept strange at first. And the cultural memory that flows down generations means that right now it seems like an alien concept even to those in the twenties. Why not, under the right conditions, also get used to the idea of housing as service and give up our fixation on home ownership? Perhaps it’s just habit holding us back. That doesn’t mean it is wrong for millennials to aspire to home ownership. But maybe there is also room for another way that might not be as bad as the legacy of our cultural history makes it look right now.


The opinions expressed by our writers are their own and do not represent the views of UK Investment Guides. The information provided on UK Investment Guides is intended for informational purposes only. UK Investment Guides is not liable for any financial losses incurred. Conduct your own research by contacting financial experts before making any investment decisions.

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