Young people’s ability to get their foot on the housing ladder is becoming increasingly shaped by their parents’ wealth - an effect which is creating a stratified housing market and driving wealth inequalities, according to a new study.
Over six-years, between 2010/12 and 2016/18, analysis from researchers at the University of Bath shows that homeownership and housing wealth (house value minus outstanding debts) has become increasingly influenced by parental wealth.
Young people from the least affluent backgrounds report lower levels of homeownership and housing wealth than their predecessors growing up in similar circumstances did just six years earlier. Conversely, no such pattern was found for those from the most affluent backgrounds. Accordingly, the ‘housing crisis’ facing young people in Britain is more nuanced than is generally perceived, say the economists behind the study.
The latest research shows that individuals from the wealthiest backgrounds are three times more likely to report homeownership by the age of 35, compared to individuals from the most disadvantaged backgrounds. Not only is parental wealth increasingly linked to whether offspring report owning their home, but also the level of housing wealth held. By age 35, the average level of net housing wealth is ten times higher among those from the wealthiest background compared to individuals from the most disadvantaged backgrounds (£105,296 versus £10,536).
The authors highlight whilst the pace at which wealth inequalities are widening is rapid, this should be considered as a long-term policy issue which without some form of intervention will be further compounded over time. Initiatives should focus efforts to level up and improve the life chances of those with low or even zero family resources to draw on. Ignoring this will lead to a growing ‘economic penalty’ of being born to parents of low wealth which will increasingly constrain individuals’ life choices and have profound ramifications in later life.
The researchers, Dr Ricky Kanabar and Professor Paul Gregg from Bath’s Centre for the Analysis of Social Policy, argue that policymakers must re-focus efforts to address wealth inequality and social immobility and the factors which determine it. This includes increasing funding for education and training, especially in the most deprived areas to improve earnings and in work progression. Policy options could also include greater financial literacy and planning initiatives, starting from school-age and continuing into adulthood, which stress the importance of budgeting, saving and investing.
Separately, they argue policymakers should consider new homeownership policies targeted at those from the least advantaged and most deprived backgrounds and increasing the supply of affordable housing available across the four nations. Estimates suggest that 345,000 new homes are required each year in England alone, yet in 2019/20 the total housing stock increased by only 244,000.
Lead author, Dr Ricky Kanabar from the Centre for the Analysis of Social Policy at the University of Bath explains: “Many of us will have experienced the effects of parental wealth, either directly as recipients or witnessing friends and colleagues, supposedly in similar situations, all-of-a-sudden being able to put down deposits for their first house. Of course, parents wanting to help their children is natural and understandable, however we also need a policy environment which allows individuals from less affluent backgrounds to get ahead too. If we do not expand access to homeownership then the current trends in wealth inequality are likely to continue widening at a rapid pace.”
Between 2010 and 2018 average house prices in Great Britain grew by over 37%, and by a further 11% in the year to September 2021. This was shaped by Covid-19 increasing demand for housing, with house prices currently reaching on average £254,822 according to Nationwide (December 2021). A separate report from Zoopla (December 2021), found that nearly two-thirds of parents contributed towards the deposit of their offspring’s home (contributing on average £32,440); with just over one in 10 parents paying the entire deposit.
Dr Kanabar adds: “The historic and recent returns on housing implies that as house prices continue to rise, the distinction between having and not having your own home will affect individuals’ wealth accumulation and their mobility throughout their whole lives. In later years this could have profound effects when it comes to paying for social care and inheritances. If the government is genuinely concerned about levelling up and improving life chances, then it needs to introduce additional policies to reduce the pace at which wealth inequality is increasing.”
‘Intergenerational wealth transmission and mobility in Great Britain: What components of wealth matter?’ is published as a UCL Working Paper by Professor Paul Gregg and Dr Ricky Kanabar at the University of Bath.