Unaffordability Makes Millennials Look To Rental Housing

Renting seems to be ultimate choice for the young generations
Renting seems to be ultimate choice for millennials.

Today’s generation are tomorrow’s property owners/investors and landlords, as well as future tenants. Thus, it is vital to observe the trends in the  property market in order to reap the best benefits from our investments.

One thing that’s gotten very clear is that youngsters are becoming more disenchanted with the housing market. Millennials all over the world, especially in major capital cities like London, Manchester, Melbourne — even in Kuala Lumpur — are facing difficulty in getting on to the property ladder.

Affordability is a prime factor that millennials have to consider when  buying a house today. Despite government initiatives provided for first-time house buyers (who are mainly millennials), affordability remains a serious issue, especially if the property of choice is in a prime location.

Chances are that lower-priced properties will not live up to most expectations, namely, convenience and proximity to what matters. Land size is no longer a priority for millennials; rather, easy access to transport links, hospitals, educational institutions, convenience stores, and the city centre are what counts. Even with governmental incentives, properties within reach of affordability are usually located in the outer suburbs, which tend to be less developed than the city centre.

First-time house buyers are getting older

It‘s everyone’s dreams to own a house, provide a shelter to the family members.
It‘s everyone’s dream to own a house and provide a shelter for family members.

Research shows that the average first-time buyer in the UK is now 30 years of age or older, which is 7 years older than in 1960.

In 1960, the average first-time buyer at 23 years old, needed only to pay £595 as down payment. Today, the average first-time buyer will need to save around £20,000 and pay a deposit of £20,622 to be able to own a house. If current property trends continue, this amount will increase as property becomes more valuable in future.

Researchers found that homebuyers in the 1960s spent only two years saving money for their deposits with an average household income of £2,854. Those who bought houses since 2011 spent more than five years saving as deposit amounts kept increasing. As a result, 48% had sought financial help from their parents.

Recently, yet another report noted that the average single first-time house buyer  would need just over 10 years to save for a deposit to buy a house in the UK. Single first-time buyers who just started saving this year would struggle to put together a 15% deposit before the end of 2028, while couples only need five years.

London noted the longest time in saving
Research by Hamptons International show the time needed by singles and couples to save for a home in the UK. Note the time taken to save for a first home in London. Original table from The Guardian.

In London, however, it take first-time buyers 17 years to put down a 15% deposit by 2035, despite house price falls due to Brexit. Goes to show how inflated prices in the UK’s capital city have become as a result of housing supply unable to cater to a growing population. 

In Australia, the typical age for first-home buyers  has increased from 27 years old in the early 1990s to 29 years old in the early 2000s. As at 2017, the average age has increased to 31 years old, with around 20% required as deposit.

Meanwhile, in Malaysia, there is high demand for rental property among millenials as only 33% of them can afford to buy a house due to escalating property prices and slow income growth.

Clearly, home ownership is becoming a big challenge for the young people all over the world. Bad enough that they would have to wait so long to own a house as prices keep rising, what more the taxes they would have to pay later on?

Buy-To-Lets Make Profitable Investments

Millennials especially in the UK and Australia are choosing to rent while saving to own a house. Even more are opting to abandon the idea of homeownership entirely,  preferring to rent instead. Renting and partial homeownership is easier, as well as cheaper, and certainly more favourable compared to a mortgage payment, especially if it means  living in convenience.

This offers a great opportunity for profit in the buy-to-let market  as landlords stand to receive good and regular income from rental property.

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A Game of Musical Chairs in the UK Housing Ministry

Kit Malthouse, the 16th UK’s housing minister
Kit Malthouse is the UK’s latest housing minister in 17 years.

It’s been a bit of a ministerial carousel in the UK cabinet, particularly the Housing Ministry.

Within 17 years, the UK has changed Housing ministers 16 times, with Kit Malthouse as the latest appointee. In fact, the Housing minister’s role changes hands more than 20 times faster than the average UK homeowner moves houses, according to the Intermediary Mortgage Lenders Association (IMLA).

Alluding to research in the association’s White Paper, The New ‘Normal’ – prospects for 2018, IMLA executive director Kate Davies  says, “The average homeowner is moving just once in more than 19 years… this means the role of Housing minister changes hands more than 20 times faster than the average UK home.”

Formerly Boris Johnson’s deputy mayor for Policing, Malthouse takes over the Housing portfolio from  Dominic Raab, now the Secretary of State for Exiting the European Union. Raab had contributed a lot to the UK housing market during his 6 months as Housing minister,  including managing the Grenfell Tower recovery programme, as well as reforming the social housing sector.

Raab also came out with a bill to ensure fairness in the UK housing sector. However, the bill is still in the third reading among parliament members and the contributions he made to the industry has yet to be fully realised. 

Really, 6 months is too short a time to see through and implement change in something as consequential and expansive as the housing market.

Yet, in the last 12 months, the UK has reshuffled Housing ministers three times within a short period:  Alok Sharma; then, Raab; and now, Malthouse . It almost seems as if the ministers are playing musical chairs among themselves in tackling the UK’s housing crisis!

And while we’re on the subject of the crisis: at the moment, there is a serious undersupply  beleaguering the UK housing market.The UK government is clearly not meeting its target of 300,000 of new houses a year to rebalance housing supply

Research suggests that to address the housing crisis, the UK government needs to build 340,000 new houses each year until 2031. This is way beyond the government’s original target.

As a direct result, getting on to the housing ladder is becoming more impossible by the day for first-time buyers. This, of course, has given rise to demand for rental housing, benefitting landlords across the UK.

Obviously, things have remained the same despite 15 ministers having taken on the job. The appointment of Kit Malthouse comes at a  crucial time, and it is imperative that he tackles the housing crisis that has haunted every housing minister that has stepped into office.

Ultimately, the chronic shortage of housebuilding can affect the stability of a nation, and it doesn’t look like change is coming any time soon.

Hopefully, Malthouse sticks around long enough to make effective and long-lasting changes to the housing market.

Image source: https://www.insidehousing.co.uk/login?Refdoc=https%3A%2F%2Fwww%2Einsidehousing%2Eco%2Euk%2Fnews%2Fnews%2Fkit-malthouse-appointed-new-housing-minister-57137