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October 10

by Samantha Altman
Cheapest homes cost too much for at least 40 per cent of young buyers

Four out of 10 young adults cannot afford to buy a home even when they stretch their finances to the limit.

Even with a 10 per cent deposit and a mortgage of 4.5 times their salary, few 25 to 34 years olds have enough money to buy the cheapest home for sale in their local area.

The situation is even worse in London, where only a third of young adults can contemplate buying a home, according to new data from think-tank the Institute of Fiscal Studies.

The data is part of a wider study looking at how barriers to home ownership have changed in the past two decades.

In 1996, 90 per cent of young adults with a 10 per cent deposit and 4.5 times salary mortgage could have bought a home in their local area.

Since then, house prices in England have soared by 173 per cent, but wages have nudged up by only 19 per cent.

The biggest increases in house prices happened before the financial crisis. It is only in London, the South East and East of England that average real house prices are above their pre-crisis level. For these regions, real house prices grew by 30 per cent, eight per cent and 10 per cent respectively between 2007 and 2017.

The answer, says the IFS, is to ease planning restrictions in London and the South East as this would help bring down home prices and rents.

Jonathan Cribb, a senior research economist at IFS who co-wrote the research, said: “The most economically productive and wealthiest parts of England – London and the South East – are those with the most restrictive planning constraints.

“It is unsurprising that these areas have also experienced the biggest house price increases. Increasing the responsiveness of construction to house prices is a necessary part of the solution, particularly in these areas.

“Unlike other policy alternatives, this would both help reduce house prices, boost homeownership and reduce rents, benefiting renters, some of whom will never own.”

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