The decline of homeownership among young adults

Whether they are rich or poor, today’s young adults are much less likely to own their own home than those in their place one or two decades ago. But the biggest decline in homeownership has been among young adults with middle incomes. In 1995–96, 65 per cent of 25 to 34 year olds with incomes in the middle 20 per cent for their age owned their own home. By 2015–16, just 27 per cent 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 per cent left school at 16. Three-quarters of them live with a partner, and around 60 per cent 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 per cent of those born in the late 1980s owned their own home at the age of 27, compared to 33 per cent for those born five years earlier (in the early 1980s) and 43 per cent 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 per cent to 32 per cent) 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 per cent of middle income 25 to 34 year olds owned a home in 2015-16 compared to eight per cent of those with low income (lowest 20 per cent for their age) and 64 per cent of those with high income (highest 20 per cent for their age). Twenty years ago, middle income young adults had homeownership rates much more similar to high income young adults.

This sharp decline in homeownership among young adults has been driven by the rapid rise in house prices relative to their incomes:

• Over the past twenty years, average house prices have grown around seven times faster than the average incomes of young adults. The average (mean) UK house price was 152 per cent higher (2.5 times as high) in 2015–16 as in 1995–96 after adjusting for inflation, but the average (mean) after-tax family income of 25 to 34 year olds grew by only 22 per cent in real terms over those twenty years.
• For nearly 90 per cent of 25 to 34 year olds, average house prices in their region are more than four times their annual after-tax family income; for nearly 40 per cent house prices are more than 10 times their income. Twenty years ago, less than half of young adults faced house prices of more than 4 times their income, and less than 10 per cent faced house prices of more than 10 times their income.
• This dramatic rise in house prices relative to the incomes of young adults fully explains the falls in homeownership. Comparing a young adult today with a young adult twenty years ago whose income was similar relative to house prices, they are equally likely to own their home. The fall in homeownership is entirely explained by the fact that young adults’ incomes are now much lower relative to house prices on average.

The new research also looks at the difference in the homeownership rates of young adults from different socio-economic backgrounds:

• Young adults from more advantaged backgrounds are significantly more likely to own their own home. Between 2014 and 2017, 30 per cent of 25 to 34 year olds whose parents were in low-skilled occupations (e.g. delivery drivers or sales assistants) owned their own home, compared to 43 per cent of those whose parents were in higher-skilled occupations (e.g. lawyers or teachers).
• Most of this difference in homeownership between young adults from different backgrounds is explained by the characteristics of the young adults themselves. After controlling for differences in their economic circumstances such as their earnings and education, the homeownership gap between those from high and low socioeconomic backgrounds is just three percentage points.

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 two in three in the mid-1990s to just one in four 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.”

* Read The decline of homeownership among young adults here 

* IFS https://www.ifs.org.uk/

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