"Renting traditionally has been viewed as one rung on the housing ladder: first, you rent an apartment or house, then move on to purchase a starter home, which is followed by the family home. Renting has always been a step in the process and rarely the endgame," - Washington Post. However, could 'Generation Rent' be shattering this traditional perception (and creating a more lucrative business for investors and landlords)?
Generation Rent, described as the generation of millennials and Generation Z who are choosing to spend longer renting or living with their parents/guardians, are propping up the property industry in the rental sector. Recent research from the Pew Research Centre concluded that this Generation Rent are more likely than any previous generation to choose to rent rather than buy a property.
Their research found that 74% of millennials are now in rented accommodation, compared to just 22% who are owner-occupiers. This is dramatically higher than any previous generation: Early Boomers - 61% renters, 35% owners; Late Boomers - 67% renters, 29% owners; Generation X - 62% renters, 34% owners.
There have been a number of reasons suggested to what has prompted this 'Generation Rent' phenomenon - what makes renting so much more attractive to this modern group? My Move suggested that the main reasons included the after-effects from the Recession of 2007 - 2009, the shift in focus from family to career in the younger generations, and the effect of the Housing Bubble implosion on mortgages.
The effect of the Great Recession and the Housing Bubble implosion
Despite only being in effect from December 2007 to June 2009, the repercussions of the recession were affecting UK residents for years after. One of the biggest impacts of the recession on millennials was the demand for more highly skilled professionals (and a lack of jobs not requiring a university degree), which led to an increase in the number of young people going to university. With this increased number of students, more people in their early 20s were finding themselves in debt, and eventually the fees for universities also increased to approximately £9,000 per year. "A restricted labour market, limited job prospects and income opportunities adversely pushed back important financial decisions, including home-buying," says My Move.
Prior to this recession, it was also easier for young people to get a mortgage. Following what was dubbed the "Housing Bubble" implosion, there was a distinct reduction in the number of mortgages that were being approved, especially with the increased debts from over 21s. People who were considered 'high-risk' financially were no longer approved for mortgages, and the qualifications for being accepted for a mortgage significantly increased. This has a knock-on effect for those looking for a mortgage following the recession, especially millennials.
Choosing career progression over starting a family
Following a 2013 Gallop Poll, it was reported that millennials are much less focused on getting married and starting a family than previous generations in their 20s. "A significantly larger percentage of millennials are delaying marriage, taking time to discover what they want out of life. They admit to feeling less pressure to make a lifelong commitment to a particular lifestyle, which may play a role in the decision to postpone home purchasing," says My Move.
Zoopla recently reported that there has "been a drastic drop in the number of young people living in a property they own [in the UK]. The latest English Housing Survey shows that budding first-time buyers are stuck in a rut" of both being able to save a high enough deposit for a house, and getting a mortgage approved in today's climate.
The English Housing Survey reported that only 37% of people aged between 25 and 34 live in a property they own, compared to 57% in 2006/2007 prior to the recession. While a rising number of under 30s are choosing to stay at home, which has contributed to the drop in home owners in this age bracket, the number of people renting has also risen - 46% of 25 to 34-year-olds now rent long-term, compared to only 27% pre-recession.
Recent research by a leading property agent asked members of 'Generation Rent' what they considered to be the reasons, pros, and cons of being a cohort of renters. Their top five answers included: buying is too expensive in today's climate, not having to worry about repair costs, there's no commitment to a location, there's no commitment to a property, and saving for a deposit is too difficult.
"Buying is just too expensive"
Affordability of housing has been an ongoing issue in the UK for many years. Prime Minister candidate Boris Johnson recently described housing in the country as "the single biggest and most urgent crisis we face", talking both about supply and affordability. Over 40% of millennials now say that affordability of housing is the prime reason for choosing to rent. On the other hand, others of this generation argue that while houses may be an expensive asset, renting is 'dead money'.
"There's no DIY or maintenance to think about"
A major expense in owning your own home is the cost of replacing, repairing and maintaining things like toilets, boilers, appliances, and walls. When renting, a quick call to the landlord or letting agent can solve these problems with no cost to the tenant - something which is appealing for the younger generations.
"It's easy to move between locations"
For a generation where image is everything, millennials find it much more appealing to have the flexibility to move around - and not just from city to city. As parts of towns and cities become trendier, having the flexibility of a short-term tenancy agreement allows young people to quickly move to these trendier parts of town. For a generation which values having the 'cutting edge' lifestyle, especially in London, renting is the easiest option.
"No commitment to one property"
With the millennial generation being one of the most flexible generations in terms of their careers and locations, it's easy to see why renting would be a good option. Not being tied down to one property, and having the flexibility of knowing exactly when you are able to move without having to wait potentially months to sell a home, this generation appreciate not being tied down and to have the option to quickly be able to change locations, jobs, and who they are living with.
"We can't buy even though we want to"
For many older members of Generation Rent, their reasons for not getting on the property ladder are that they feel they simply can't afford it. Those in the generation struggling after the 2007 - 2009 recession feel that it's more difficult now to get a mortgage, borrow money and even save money with so many costs to living and creating a lifestyle they want. A large percentage of this group feel that unless they look at buying a property a long time down the line, their only options for finding a big enough deposit for a house are to borrow or be lucky enough to have a helping hand from family.
"What about the Help to Buy Scheme?". How has this impacted the first-time buyer market, and how will this affect Generation Rent in the future? This government-backed initiative aims to help first-time buyers by offering a 15% interest-free loan allowing buyers to purchase with just a 5% deposit. Leading Charted Building Surveyors, Allcott Associates, has summed up what impact this scheme has had so far:
"So far, figures suggest that the scheme has indeed helped a number of people to get on to the property ladder. However, as always there are certain quarters that feel that it will create a housing bubble. While for the moment the results of the Help to Buy Scheme look promising, we'll have to wait on the true impact - whether positive or negative may not be felt for some time."
Buying a property in the future isn't off the cards however for Generation Rent - it just appears that getting to a comfortable place financially is postponing the buying process. The majority of renters aged 25 to 34 said that they hoped to become home owners one day, however 41% felt that it will be at least 5 years before they can consider buying a property (putting many of this group into their 30s). "The age at which people get on the property ladder is increasing, with the typical first-time buyer aged 33 in 2016/17, up from 30 a decade ago" (Zoopla).