Housing needs of young people

On 14 March 2024, the House of Lords is scheduled to debate the housing needs of young people. Lord Young of Cookham (Conservative) will sponsor the debate. Lord Young is a former housing minister.^[1]

1. What housing issues have young people faced?

The rate of home ownership among young adults has fallen over recent decades. Research by the Institute for Fiscal Studies (IFS) published in 2018 considered the barriers to home ownership for young adults.^[2] It found that since 1997, the falling rate of home ownership among young adults had created an economic difference between older and younger generations. Key findings included the following:

• There had been a “substantial fall” in home ownership among young adults since 1997. The IFS said 35% of 25- to 34-year-olds in 2017 were homeowners, a decrease from 55% in 1997. The IFS noted that the biggest fall had been seen among middle-income young adults.
• Average property prices in England had risen by 173% (after adjusting for inflation) and 253% in London since 1997. This compared with an increase in real incomes of 25- to 34-year-olds of 19% across the same period. Between 2007 and 2017, the IFS said real house prices had not risen across most of the country. However, they had increased by 30% in London, 8% in the South East and 10% in the East of England. The IFS said rising house prices had benefited older generations at the expense of younger ones and had increased intergenerational inequalities.
• Increases in property prices relative to incomes had made it increasingly hard for young adults to raise a deposit. The proportion of young adults who would need to spend more than six months’ income on a 10% deposit for the median property in their area had increased from 33% in 1997 to 78% in 2017. However, the IFS noted that most of this increase had occurred between 1996 and 2006. Since 2007, stable or falling house prices outside of London, the South East and the East of England had meant that raising a deposit had become slightly easier.
• Many young adults were restricted in their ability to purchase a home, even with a 10% deposit. Most mortgage lenders did not lend more than 4.5 times a person’s salary, the IFS said. For 93% of young adults with a 10% deposit in 1996, borrowing 4.5 times their salary would have enabled them to buy one of the cheapest properties in their area. However, by 2016, the proportion of young adults in the same position had fallen to 61% across England as a whole and around 35% in London.

Intergenerational fairness has been considered by a number of bodies in recent years. For example, the House of Lords Intergenerational Fairness and Provision Committee published a report in 2019 which concluded that many young people were “struggling to secure affordable housing”.^[3] It said this had been “caused by the failure of successive governments to ensure a sufficient supply of affordable homes to buy and to rent”, adding:

Although the government states that housing supply is one of its priorities, it is still not doing enough to address this problem. It could go further by giving local authorities much stronger powers to develop housing on publicly owned land and to borrow to fund house building.^[4]

In response, the government said it was committed to increasing the supply of affordable housing and outlined policy responses designed to increase the supply of homes, including allowing local authorities to borrow more to build council homes, releasing government-held land for home building and making changes to the planning framework.^[5]

In addition, the Intergenerational Commission convened by independent think tank the Resolution Foundation had published its final report a year earlier. The commission said that UK “millennials”—those born between 1981 and 2000—were struggling to match several lifecycle milestones that earlier generations had enjoyed, including home ownership.^[6]

Five years on from its 2018 report, the Resolution Foundation’s 2023 intergenerational audit concluded that young people were still far less likely than previous generations to own their own home and more likely to find themselves in the private rented sector.^[7] Between 1989 and 2013, the foundation’s researchers found the number of homeowners aged 19 to 29 years had fallen by almost two-thirds, from 23% to 8%.^[8] During the same period, the proportion of young households living in social rented accommodation had fallen by over a third, from 11% to 7%. The number living with their parents had seen a slight increase, from 46% to 48%, whilst the number living in the private rented sector had more than doubled, from 12% to 32%.

The researchers reported an improvement in home ownership among young people more recently. Between 2013 and 2021, they said home ownership among young people had risen from 8% in 2013 to just over 12% in 2021. However, the report said young people in 2021 were still half as likely to own their own home than young people 30 years earlier had been. Alongside this, the report said the proportion of young family units living with parents had increased to 53% during the same period. The proportion of young people in the private rented sector had also fallen by 7 percentage points over the same period. The researchers noted the decline in home ownership rates in the UK had been most severe for young non-graduates.

In contrast, the researchers said the opposite trend could be seen among older adults. In 2021, 74% of family units aged 65 and above owned their own home, more than double the 34% that did in the early 1960s. Additionally, researchers reported a fall in the proportion of family units aged 65 or above in private rentals or social rentals. They said social renting by this group had fallen gradually from the 1990s and private renting from the late 1970s. By 2021, 16% of this type of household lived in the social rented sector and 6% in the private rented sector.

The researchers said lower home ownership rates among young people meant that millennials spent longer in the private rented sector. In 2021/22, a typical private renter spent over a third (34%) of their net income on housing costs. This was more than three times the proportion of net income that a typical mortgage holder spent on their mortgage interest payments (10%).^[9] The report said these higher costs made it harder for millennials to save for a deposit. Additionally, researchers stated these costs hindered improvement to living standards because millennials were less able to save wealth for later life. The report highlighted that higher interest rates were projected to help narrow disparities between mortgage holders and private renters.^[10] However, it said the gap in housing costs between private renters and mortgage holders over the next five years was projected to remain significantly wider than it was throughout the 1960s, 1970s and 1980s.

The researchers highlighted that these economic challenges were not unique to the UK, with young people in the US also facing lower home ownership prospects than previous generations at the same age.^[11] However, they said millennials in the UK had been less successful in narrowing the generational divide. Additionally, young UK adults had experienced much larger initial falls in home ownership rates when compared to the US, as well as a smaller recovery.

2. How many young adults are living with their parents?

Results from the 2021 census found that more families in England and Wales had adult children living with them compared to a decade earlier.^[12] The term ‘adult children’ referred to any non-dependent child who was aged 18 or over, was living with their parents and who did not have a spouse, partner or child living with them. The term also included anyone aged 16 to 18 years who was not in full-time education and did not have a spouse, child or partner living with them.

The Office for National Statistics (ONS) reported that the number of families in England and Wales that had adult children living with their parents had increased by 13.6% between 2011 and 2021 to 3.8 million. Additionally, the total number of adult children living with their parents had increased by 14.7% in the same period, from around 4.2 million in 2011 to around 4.9 million in 2021. The ONS said 1 in every 4.5 families (22.4%) contained an adult child in 2021, compared to 1 in 5 (21.2%) in 2011. Of the adult children living with their parents in 2021, 60.8% were male and 39.2% were female. The ONS said this was a similar split to the results from 2011 (61.6% and 38.4%).

Several factors can cause an adult to live with their parents. For example, the ONS noted that adults were more likely to live with their parents in an area where housing was less affordable. It also reported that adult children living with their parents were also more likely to be unemployed or providing unpaid care. Despite the 2021 census being conducted during the Covid-19 pandemic, the ONS said the increase in the number of adults living with their parents appeared to be a continuing trend rather than a result of the pandemic.

The ONS has analysed estimates of the number of young adults aged 15 to 34 years in the UK living with their parents for several years.^[13] In its latest release, the ONS estimated that 40% of 16.5 million people aged 15 to 34 in the UK were living with parents in 2022, equating to around 6.7 million people.^[14] This was a slight decrease compared to 42% in 2021 and 41% in 2020.^[15] Looking further back, this compared to 39% in 2010 and 36% in 1996.^[16]

3. How can these housing issues be addressed?

Several think tanks have considered whether new housing policies could increase home ownership among young people. For example, as part of an essay collection by the Centre for Policy Studies (CPS), Anya Martin, adviser to the campaign group for affordable house prices Priced Out, said while young people were not the only victims of the housing shortage in Britain, they were the most severely affected.^[17] Ms Martin highlighted how reduced home ownership rates, increased rent prices and living with parents could all impact a young person’s employment opportunities and chance of starting a family. She illustrated several policies that could be explored to address the problem, including planning deregulation and seeking local community consensus for developments. Ms Martin referred to similar schemes operating in other countries which had been shown to positively affect housing supplies and the regeneration of communities. However, she warned that the most important thing was to “avoid framing the housing shortage as an intergenerational war in which the young can prosper only by triumphing over the old”.

On home ownership specifically, former CPS researcher Elizabeth Dunkley said the “soaring housing market” and increased income disparities had made it difficult for young people to afford a home.^[18] This left young people in a cycle of unaffordable rents and limited prospects for the future, she said. To address the problem, Ms Dunkley said the current “short-term” approach to home financing should be reassessed to provide more routes into home ownership. Policies could include supporting more long-term, fixed-rate mortgages and introducing gradual home ownership (GHO) schemes that were not restricted to new build developments only.

Other examples include the Smith Institute’s Affordable Housing Commission, chaired by Lord Best (Crossbench), which in March 2020 called for a range of measures to “rebalance the housing system to provide affordable housing opportunities for all by 2045”.^[19] This included support for “first-time buyers stuck in the private rented sector by levelling the mortgage market, providing targeted support for deposits and increasing supply”. The commission also called on the government to pursue planning reforms to improve the supply of affordable homes.

Other organisations have called for reform of the planning system. Urban-policy think tank the Centre for Cities estimated Great Britain to have a housing deficit of 4.3mn homes compared to the European average.^[20] To address this, the think tank said that the existing planning system should be replaced. It argued there needed to be a “[shift] away from uncertain, case-by-case decision making to a system where development is lawful so long as it follows the rules”.^[21] It re-emphasised this message in a 2024 report, stating that the next government should build upon the Levelling Up and Regeneration Act 2023 and move to a rules-based approach for planning.^[22]

4. What are the government’s house buying schemes and rent increase policies in England?

The government does not specifically allocate new housing for people.^[23] However, the government has introduced or continued a range of schemes in England to help first-time buyers get onto the property ladder. This includes the first homes scheme, the mortgage guarantee scheme, shared ownership, stamp duty land tax relief and individual savings accounts.

4.1 First homes scheme

Launched in June 2021, the ‘First homes’ scheme allows first-time buyers to purchase a property for 30% to 50% less than its market value.^[24] The property can be either a new build by a developer or a property that has been previously purchased through the scheme. To be eligible, first-time buyers must be 18 years or older, be able to get a mortgage for at least half the price of the home and not be earning more than £80,000 a year before tax (or £90,000 if the property is in London). Councils can set local eligibility criteria that applies during the first three months the property is on sale. For instance, some councils may choose to prioritise key workers, local residents or those on lower incomes. Exemptions to local eligibility criteria apply for members of the armed forces and their families.

4.2 Shared ownership

Shared ownership was first introduced in the 1980s to help people who could not afford to buy a property outright.^[25] The government launched its most recent model of shared ownership in April 2021.^[26] This allows people to buy a share of between 10% and 75% of a property’s market value and pay rent to a landlord for the remainder. Buyers can choose to take out a mortgage to buy their share or pay for it with savings. They are also required to pay a deposit, usually between 5% and 10% of their share. Buyers can reduce the amount of rent they pay to a landlord overtime by purchasing a larger portion of shares in their home in the future. The scheme can be used to purchase properties that are either new builds, existing homes available through a shared ownership resale scheme, or homes that meet the buyers specific needs, for example if they have a long-term disability. Shared ownership homes are provided by housing associations, local councils and other organisations. To be eligible, the buyer’s household income must be £80,000 or less (£90,000 or less if in London) and they must be unable to afford the deposit and mortgage payments for a home that meets their needs. The scheme is available to first-time buyers, as well as existing homeowners who meet certain criteria. Serving members of the armed forces are prioritised under the scheme. More information on shared ownership can be found in the House of Commons Library briefing, ‘Shared ownership (England): The fourth tenure?’ (14 December 2021).

4.3 Mortgage guarantee scheme

Launched in April 2021, the ‘Mortgage guarantee’ scheme provides a government guarantee to lenders that offer 95% mortgages on homes with a value of up to £600,000.^[27] This type of mortgage can be used to support buyers who can only provide a deposit of 5% of the purchase price. The scheme is open to new 95% mortgages until 30 June 2025.

4.4 Stamp duty land tax relief

First-time buyers in England and Northern Ireland can claim relief from stamp duty land tax (SDLT) when buying a property for up to £625,000 where they intend to occupy it as their main residence.^[28] Different schemes apply in Wales and Scotland. Under the relief scheme, first-time buyers are required to pay 0% SDLT on the first £425,000 and 5% on the remainder up to £625,000. In the autumn statement 2022, the government announced that the SDLT relief would remain in place until 31 March 2025.^[29] The government amended the law to this effect via the Stamp Duty Land Tax (Temporary Relief) Act 2023. More information about the act can be found in the House of Lords Library briefing, ‘Stamp Duty Land Tax (Temporary Relief) Bill’ (13 January 2023).

4.5 Individual savings accounts (ISAs)

Since 2015, the government has introduced two types of individual savings account (ISA) aimed at helping first-time buyers save for their first home: the ‘help to buy ISA’ and the ‘lifetime ISA’:

• Help to buy ISA: First announced in the budget 2015, help to buy ISAs enabled first-time buyers to pay up to £200 per month into a savings account. The government would then pay a top-up of 25% (capped at £3,000) when they purchased their first home up to the value of £250,000 (or up to £450,000 in London). The government’s help to buy ISA closed to new applications in November 2019. However, existing account holders can still pay into their accounts until November 2029 and claim the 25% bonus until November 2030.
• Lifetime ISA: Announced in the government’s budget 2016, the lifetime ISA is intended to help first-time buyers between the ages of 18 and 40 purchase their first home or allow others to save for later life.^[30] Account holders can deposit up to £4,000 into the ISA each year until they turn 50. The first payment into the ISA must be made before the account holder turns 40. The government will add a 25% bonus to the person’s savings, up to a maximum of £1,000 per year. The account holder can withdraw money from the ISA if they are buying their first home up to the value of £450,000, are aged 60 or over, or have received a terminal diagnosis. Withdrawal for any other reason incurs a charge of 25%.

4.6. Rent increases for private renters

Tenancy agreements should contain information about how landlords will review rent.^[31] However, there is no cap on the amount rent can be increased. Government guidance states that rent increases should be “fair and realistic”. Tenants can apply to a tribunal to decide on certain rent disputes in England.

The government has said it does not support rent controls.^[32]. However, the government has recently introduced a bill aimed at making rent increases more predictable for tenants. If passed, the Renters (Reform) Bill 2022–23 would introduce a new statutory process for annual rent increases. This would make issuing a section 13 notice the only valid way that private landlords could increase their rent.^[33] Landlords would also be required to serve notice on their tenants with at least two months’ notice.

5. What did the government say in its most recent announcements?

Increasing the supply of homes in England is one of several housing issues the government has committed to address. The government’s 2019 manifesto included a commitment to build 300,000 new homes annually by the mid-2020s and to supply 1 million new homes by the end of the current parliament.^[34]

In July 2023, the secretary of state for levelling up, housing and communities, Michael Gove, announced the government’s long-term plan for housing in England.^[35] As housing policy is a devolved matter, this included various policies for regeneration, inner-city densification and housing delivery across England.^[36] In December 2023, the government announced the next stage of its long-term plan for housing.^[37] In the statement, Mr Gove said the best way to deliver “more homes, more quickly, more beautifully and more sustainably” would be via a long-term programme of reforms to the planning system. This included revisions to the national planning policy framework which is the government’s national planning policy for England. The minister also said planning reforms would be delivered via the Levelling-up and Regeneration Act 2023. More information on these reforms can be found in the House of Lords Library briefing, ‘Long-term plan for housing’ (13 February 2024). In January 2024, the government said its “ambition of delivering 300,000 homes a year remains”.^[38]

In February 2024, the government announced a new policy that would require councils in England to prioritise housing development on brownfield land.^[39] It also said councils would be directed to be “less bureaucratic and more flexible” when applying policies that halted brownfield development. The government stated that an analysis undertaken as part of the London plan review had estimated that new brownfield development in London could create up to 11,500 additional homes per year.^[40] The government said this brownfield presumption would make it easier to get permission to build on previously developed brownfield sites and therefore help more young families to find a home. The Department for Levelling Up, Housing and Communities has launched a consultation on these proposals that is scheduled to run until 26 March 2024.^[41] The latest announcement also contained other policy measures the department said it planned to introduce, including extending permitted development rights to allow commercial buildings of any size to be converted into new homes without requiring planning permission.^[42]

Most recently, at budget 2024 the government said it was committed to supporting more first-time buyers purchase their own homes.^[43] Housing announcements included a reduction in the higher rate of capital gains tax, from 28% to 24%. The government said this would encourage landlords and second homeowners to sell their properties and increase housing supply for first-time buyers, amongst others.

6. Read more

• House of Lords Library, ‘Long-term plan for housing’, 13 February 2024
• QSD on ‘Long-term national housing strategy’, HL Hansard, 29 February 2024, cols 153–68
• House of Lords Library, ‘Housing in England: Issues, statistics and commentary’, 10 November 2022
• House of Lords Library, ‘Meeting housing demand: Built Environment Committee report’, 4 November 2022
• House of Lords Library, ‘Coming home: Calls for a long-term housing strategy in England’, 19 March 2021
• National Audit Office, ‘The affordable homes programme since 2015’, 8 September 2022

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Cover image by Benjamin Elliott on Unsplash