Millennials have found it hard to buy homes – but things may be turning a corner

Paul Cheshire

Housing economist Paul Cheshire provides a stark illustration of the long-term disconnect between property values and general inflation, comparing the rise in house prices to that of egg prices over 71 years. This comparison underscores how housing has become an increasingly disproportionate expense for successive generations. The fundamental issue, as highlighted, is that property prices have consistently outpaced average incomes for decades, creating an ever-widening affordability gap. This trend has made it significantly harder for younger generations, particularly millennials, to accumulate the necessary capital for a down payment, even with stable employment.

The historical context provided by Cheshire's analysis is critical for understanding the current challenges. It demonstrates that the difficulties faced by today's first-time buyers are not merely a recent phenomenon but the culmination of long-term structural issues within the housing market. While changes in mortgage markets have played a role, the core problem remains the insufficient supply of new homes relative to demand. This imbalance has driven up prices, making the dream of homeownership increasingly elusive for many.

300,000

The UK government's estimated need for 300,000 new dwellings per year in England alone starkly contrasts with the actual construction rate, which saw only 208,000 homes added last year. This persistent shortfall, which has lasted for at least three decades, is a primary driver of the housing affordability crisis. The article attributes this deficit to a confluence of factors, including inflation in land prices, builders' wages, and raw materials like timber, steel, and concrete. These costs were exacerbated by the Covid-19 pandemic, which disrupted supply chains, and further by geopolitical events like the war in Ukraine, which drove up energy costs for manufacturing and construction.

The rising and unpredictable cost of building, coupled with a lack of skilled staff—a problem predating the pandemic and worsened by Brexit—has deterred housebuilders from committing to new projects with confidence. A home that cost £150,000 to build in 2015 now costs £230,000, with analysts predicting a further 15% increase in the next five years. This escalating cost environment, alongside strict planning regulations designed to protect the environment and uphold safety standards, creates significant barriers to increasing housing supply. The cumulative effect is a market where demand consistently outstrips supply, pushing prices higher and making homeownership a distant prospect for many.

Sir Keir Starmer

The current government, led by Sir Keir Starmer, has introduced plans aimed at streamlining the often chaotic and slow planning processes, a critical bottleneck in housing development. These reforms are intended to accelerate the approval and construction of new homes, addressing one of the long-standing structural issues contributing to the housing shortage. A notable and potentially controversial aspect of these plans is the proposal to allow more homes to be built on the green belt, a policy shift that could significantly increase available land for development but also faces environmental and community opposition.

While these governmental initiatives represent a concerted effort to tackle the housing crisis, the article cautions that the results will take years to materialize. The inherent complexities of large-scale construction projects, coupled with the time required for policy changes to translate into tangible outcomes, mean that immediate relief for first-time buyers is unlikely. Ultimately, the success of these reforms hinges on their ability to incentivize builders to commit with greater confidence, ensuring a sustained increase in housing supply. This long-term perspective highlights that while policy changes are underway, the path to widespread housing affordability remains a protracted one.