Even the cheapest local homes ‘out of reach for 40% of young adults’

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Around four in 10 young adults in England would not be able to buy one of the cheapest homes in their area even if they managed to save a 10% deposit, research has found.

As long as they had a 10% deposit, in 1996 over 90% of 25 to 34-year-olds would have been able to purchase a house in their area if they borrowed four-and-a-half times their salary, the Institute for Fiscal Studies (IFS) said.

But it found that by 2016, that proportion had fallen substantially.

By this time, even with a 10% deposit, only around 60% of young adults would have been able to borrow enough to buy even one of the cheapest homes in their area – leaving properties out of reach for the remaining 40%.

In London, only around a third of young adults with a 10% deposit could borrow enough to buy one of the cheapest homes in their local area, researchers found.

Back in 1996, if they had borrowed four-and-a-half times their salary, 90% of young adults in London could have done so.

The findings, looking at how barriers to home ownership have changed over the past 20 years, are contained in a chapter of the IFS Green Budget 2018 – which will be published on Tuesday.

The IFS said the extent to which property prices have raced ahead of incomes has made it increasingly hard to raise a deposit for a home.

In 2016, around half of young adults would have needed to save more than six months of their post-tax income to raise a 10% deposit on one of the cheapest properties in their area, it said.

Just one in 10 would have had to do this in 1996, according to the calculations.

The research also found that after adjusting for inflation, average house prices in England have surged by 173% since 1997, compared with an increase in young adults’ real incomes of just 19%.

Polly Simpson, a research economist at the IFS and a co-author of the research, said: “Big increases in house prices compared to incomes over the last two decades mean that it is increasingly difficult for young adults to get on the housing ladder, even if they do manage to save a 10% deposit.

“Many young adults cannot borrow enough to buy a cheap home in their area, let alone an average-priced one. These trends have increased inequality between older and younger generations, and within the younger generation too.”

The IFS argued that easing planning restrictions would increase home ownership and reduce both property prices and rents.

Jonathan Cribb, another author of the research and a senior research economist at the IFS 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 home ownership and reduce rents, benefiting renters, some of whom will never own.”

A spokesman for the Ministry of Housing, Communities and Local Government, said: “This government is committed to helping more people get on the housing ladder and last year saw the highest number of first time buyers for over a decade.

“Through our Help to Buy scheme and the cut in stamp duty for first time buyers we are helping restore the dream of home ownership for a new generation.

“Over 1.1m properties have been built since 2010 and our targeted investment and planning reform will deliver more of the homes communities need.”

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