The rules of the game for making the transition from youth to adulthood in the UK are — by and large — that if you work hard and get a good job with a solid salary, you’ll be able to pay your way to a decent standard of living. Socialising, holidays, somewhere to rent: if you earn more, you can afford more.
Then you hit thirty, and the rules change. People you’ve grown up with, people you might consider your income peers, start achieving milestones that require upfront payments larger than anything you’ve seen in your bank account, perhaps even on your P60. Lavish weddings. London houses. It can happen quietly, but all of a sudden you’ve unmistakably fallen into the yawning gap between those with and without parental wealth.
This phenomenon is hardly new, but the housing affordability crunch has made it much worse. Forty years ago it took the average couple three years to save for a deposit to buy a home in the UK. Today it takes nine, rising to 15 in London. And with mortgage rates rocketing, the incentive to put down a larger deposit is greater than ever.
Try as they might, young adults have not miraculously been able to save three to five times as much as previous generations had to — cue parents stepping in. Two decades ago, about a quarter of first-time buyers in Britain said their parents had given them a financial leg up on to the housing ladder, but by 2019 that figure was 54 per cent. Most of these cases involved gifting offspring a property outright, or paying some or all of the deposit.
It’s bad enough that millennial home ownership continues to lag behind previous generations, but the comparisons often miss this crucial fact: the slow and delayed progress younger generations are making towards buying somewhere to live has been made possible by increasing dependence on wealthy parents.
This pattern is self-replicating. Home ownership and housing wealth are the biggest drivers of the wealth divide within each generation, according to a new working paper by University of Bath economists Paul Gregg and Ricky Kanabar. By making affluence among one generation increasingly conditional on parental wealth, the mechanism we appear to have quietly chosen to solve our housing affordability crisis is to entrench inequality.
The results are already stark. Home ownership among Britain’s 35-year-olds stands at 47 per cent today, but this masks huge gaps between those with and without family wealth. The figure is 58 per cent among the offspring of parents who accumulated housing wealth from early adulthood, but just 27 per cent among those whose parents were unable to buy, according to my analysis of the Wealth and Assets survey.
The value of properties owned by people from poor backgrounds is also substantially lower than those with a better-capitalised bank of mum and dad, compounding the issue.
And this is not merely a function of higher incomes. Even if we compare people with the same earnings, those with wealthier parents are consistently more likely to own a home — and those homes are more valuable. By my calculations, a 35-year-old with parents who rent needs to earn around £25,000 more per year than their contemporaries with homeowning parents in order to have the same shot at buying a house.
The gap is widening. As affordability has worsened over the past decade, those with more parental wealth have been drawing upon progressively more of those resources to maintain the same rates of home ownership, while people with little family wealth find themselves increasingly priced out altogether.
Gregg and Kanabar calculate that on current trends, the strength of the relationship between the housing wealth of parents and their offspring — already positive and significant — is set to double in the next 50 years.
Over more than two decades, successive governments have looked on as housing affordability has cratered. Those that can, look after their own, but the problem with relying on wealthy parents to solve a societal problem should be obvious: not everybody has them.
john.burn-murdoch@ft.com, @jburnmurdoch