Young people in the UK face multiple barriers if they hope to enjoy as contented a retirement as the baby-boomer generation.
Few will have the luxury of the defined benefit pensions that many of their elders take for granted. They will have to work longer before they can claim the state pension and a rising proportion will be stuck in rented housing for life, so will have no property wealth either.
On the basis of current trends, the Centre for Housing Policy at York university estimates that by 2040 up to one-third of 60-year-olds will rent privately.
Government data show that at present just 4 per cent of pensioners and 8 per cent of those aged 55 to 64 live in privately rented accommodation.
The proportion of 25 to 34-year-olds who rent privately has been stable at about a third over two decades but has risen notably for 35 to 44-year-olds, from 16 per cent to about 25 per cent now.
Young people also spend more on housing costs (a third of their income on average, the Resolution Foundation reports) than did youthful baby boomers (a fifth) and the rent they pay will often go directly to the pension income of their retired landlords.
A government survey of English private landlords updated in January shows six in 10 landlords are 55 or older, a third are retired, and the most common reason for being a landlord was for pension purposes (59 per cent).
Generation rent, mainly the under-40s, are unlikely to be able to pass on the costs of their own retirement to the generations following them in quite the same way. Even if they can afford a home of their own, tax changes in 2016 have made it less attractive to buy another property to rent.
The government has switched from subsidising buy-to-let landlords, who do not expand the overall supply of property, to encouraging institutional investment in build-to-rent (BTR) development. It didn’t have to push hard as money was already headed to that sector, seeing the attraction of a diversifying asset offering a rising income and the potential for capital gain.
Legal & General already has 11 BTR schemes in operation or development, the latest in Brighton. M&G, Barings and Aberdeen Standard Investments are also active, and Goldman Sachs issued its first UK BTR loan in April, backing a 42-storey residential tower in Birmingham.
The British Property Federation talks of a “building boom” for BTR housing, pointing to a 39 per cent increase in homes under construction in 2018 over 2017, and a 29 per cent increase in completions.
The claimed benefits for tenants of BTR homes are flexible tenancies of up to five years, no letting fees, predictable rent increases and professional management. Utilities are often included in the rent and amenities may include a gym and residents’ lounge. Some schemes allow pet ownership.
This all comes at a price. Tenants in a BTR development will typically pay an 11 per cent rental premium, according to analysis by JLL, a property consultancy. At least they may be contributing to their own generation’s pension prospects rather than those of current retirees.
Julie Rugg and David Rhodes, of the Centre for Housing Policy, question the lack of transparency on the level of government support for BTR. The issue is pertinent, they say, given the sector’s orientation to “profit maximisation and subsequent rent inflation”, and the question of whether it meets local housing demand.
Mick McAteer, co-director of the Financial Inclusion Centre, says BTR is a better model than buy-to-let in terms of the hierarchy of housing solutions but is an expensive way to expand housing supply compared with government borrowing.
Building more social housing would be a better way to help generation rent.
A cross-party commission on social housing convened by housing charity Shelter after the Grenfell Tower fire in London in June 2017 said the decline in social housebuilding over four decades was behind many of today’s housing problems. It called for a 20-year programme to build 3.1m more social homes, as well as more immediate reforms to address problems in the private rented sector.
Lower housing costs would give a big boost to the pension prospects of generation rent.
