Generation Rent

Who are

Generation Rent?

Generation rent is a term referring to individuals aged 18-40 who have been priced out of the housing market. Therefore, they tend to rent their homes for longer compared to previous generations. Generation Rent relates to the people ‘employed with no disposable income’ (ENDIES). This means people are unable to save up for the growing deposits to buy a property, meaning they can not afford to get out of renting. Consequently, it is becoming more difficult for first-time buyers to climb the ever-growing property ladder.

According to the Office for National Statistics (ONS) analysis of the 2021 census, the number of people who have bought their own house has fallen by half a million in the past ten years. However, the number of people renting has rapidly grown by 1.3 million. As a result, demand for rental property has vastly increased.

The Cause of Generation Rent

Besides the inflating prices in the property market, Generation Rent faces financial difficulties from student loans, slow wage growth, and the rising cost of living. The problem of generation rent is mainly due to a broken housing market, where house prices have risen faster than wages for several decades. Although increasing house prices is not good news for first-time buyers, they will benefit current landlords and buy-to-let investors.

Furthermore, the UK population is rapidly growing, as well as life expectancy. As a result, demand for properties in the UK will heighten. Demand is predicted to grow by 250,000 a year. However, housing supply is limited due to the difficulty of making land available to develop properties. This leads to a more competitive market as an influx of tenants enters the rental market, which will no doubt benefit buy-to-let landlords.

Impact of Generation Rent

Landlords Boosting Rents

When home buyers take out a mortgage, the payments do not align with inflation. Meanwhile, rents are climbing as fast as inflation, if not faster, because there aren’t enough rental properties available. This high demand from rentals means landlords can charge more. As rents keep creeping up, renting becomes less affordable for people looking to move. But for investors, higher rents mean more income.

Longer Tenancies

On average the two-year fixed mortgage rate is currently around 5.7%, decreasing from 6.86% in July 2023. Due to interest rates lowering homeowners are paying a smaller percentage of their income on housing costs. Whereas renters are paying nearly double housing costs, making it nearly impossible to save up to buy a house. Renters also face the problem of no end in sight to paying high rents, unlike owner-occupiers who can look forward to paying off their mortgage.

Homeownership Vs Renting

The usual method of measuring inequality is to compare average incomes. However, if renters spend 50% of their earnings on rent the disposable income is quite low. Compared to an older individual, who has paid off their mortgage and is living rent-free, where all their income is disposable. People with a mortgage typically spend 19% of their income on mortgage payments. However, those who rent typically have lower incomes, yet rent payments account for 50% of income.

Helping Generation Rent

Step onto the Property Ladder

The government created a scheme called ‘The Help to Buy scheme’ to help people secure property and achieve the goal of becoming homeowners. However, there has been a 10% decrease in homeowners aged 25-34, so the scheme didn’t manage to make the percentage increase.

Other things can be done to help reduce the impacts such as: