Wealth Gap Widens for Britain’s Young With Surge in House Prices
(Bloomberg) - Rising house prices in the UK are making it difficult for younger generations to find the most common avenue of wealth accumulation, widening the gap between rich and poor.
Homeowners are benefiting from the coronavirus crisis as cheap credit and government tax cuts pushed property prices to all-time highs in the past year. The cost of a home averaged £ 253,374 ($ 340,000) in December, up 6% year over year, according to mortgage lender Halifax.
This gravity-defying surge, during the worst economic slump in three centuries, has pushed property further out of reach for young people, particularly in London, where the value of real estate has nearly doubled in the past decade. Part of the population that has already been severely affected by the pandemic is suffering from misery. Young people are more dependent on sectors that have been locked down.
"It's about the imbalance of economic power," said Robert Joyce, associate director of the Institute for Fiscal Studies and participant in a review of inequalities led by Nobel Prize winner Angus Deaton. "More and more houses belong to the same people, a narrow part of society that they rent to younger people."
There are also effects on the productivity of the economy. High housing costs can make it difficult for workers to move, drain talent from companies, and deprive young people of opportunities to get better jobs and pay.
The widening gap between “generational pensions” and those who are only a decade or two older has spawned a number of housing initiatives since the financial crisis. More recently, it has fueled a debate over whether Chancellor of the Exchequer Rishi Sunak should follow countries like Argentina by imposing a wealth tax to mend public finances torn by the UK's coronavirus.
A vocal advocate of higher taxes for the rich is Gary Stevenson, an inequality economist and former Citibank trader who accurately predicted the rock bottom interest rates long after the financial crisis. He sees a similar scenario and warns that London house prices could double again.
"It makes social mobility completely impossible and housing completely inaccessible to the bottom 50 or 60 percent of society," said Stevenson. "It's like cutting off the bottom half and saying you've lost capitalism, you're out."
Affordability is particularly pronounced in the UK capital, where first-time buyers paid an average of £ 420,618 at the end of 2020, more than nine times their income, according to the Nationwide Building Society. This means that oversized deposits or money from family are often required to purchase.
While overall wealth inequality is far less pronounced in the UK than in the US, the gap has widened over the past decade. This reflects both the Bank of England's incentives to tackle the financial crisis, which has led to a rise in asset prices, and the austerity measures that hit those of working age harder than the elderly.
In 1996, according to IFS, more than half of 25 to 34 year olds owned their homes. By 2017, that number had fallen to just over a third.
The pandemic has made the challenge even more difficult for young people with a record-low BOE reference rate and a temporary tax cut on home buying demand. In the meantime, lenders are pulling out low-deposit mortgages or raising interest rates on them as risk concerns increase.
Build, Build, Build has been the mantra of activists for years who say new homes are key to solving the housing crisis. Despite a rebound in housing construction over the past decade, the UK is still building half the houses it built at its peak in the late 1960s.
In the year through March last year, the number of homes - new builds, conversions, and repurposed properties - rose below 250,000, allowing the government to hit its target of 300,000 a year by the middle of the decade. Some say it will take nearly 350,000.
Providing affordable housing is an integral part of the strategy. These rose only 1% and were nearly 90,000 below the 145,000 the National Housing Federation, which represents housing associations, needs each year for the next decade. The political leader, Will Jeffwitz, says the goal will not be reached anytime soon.
"It will mean millions of people live in or continue to live in houses that are either unaffordable, unsafe, or of poor quality, and that negatively impact children's health, well-being and learning," he said.
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