Home ownership among young adults in Britain has collapsed, new research shows

Only a quarter of young people with middle incomes now own a home in the UK, down from two thirds 20 years ago, a new report reveals.

Those aged 25 to 34 have been hit hard by rising prices which have increased much more than incomes, according to the report from the Institute of Fiscal Studies.

Overall, whether they are rich or poor, today’s young adults are much less likely to own their own home than those in their place one or two decades ago. But the biggest decline in home ownership has been among young adults with middle incomes.

In 1995/1996 some 65% of 25 to 34 year olds with incomes in the middle 20% for their age owned their own home. By 2015/2016, just 27% of that group owned their own home.

This group of young adults have after tax incomes of between £22,200 and £30,600 per year, a third of them are university graduates, 75% live with a partner, and around 60% have children.

The research found that those born in the late 1980s are much less likely to be home owners in their late 20s than their immediate predecessors. Indeed, 25% of those born in the late 1980s owned their own home at the age of 27, compared to 33% for those born five years earlier in the early 1980s and 43% for those born 10 years earlier in the late 1970s.

While home ownership for young adults has fallen furthest in the South East, it has also fallen in every region in Britain. The proportion of 25 to 34 year olds who own their own home has dropped from 64% to 32% in the South East and by over 10% in every region.

It means that the home ownership rate of middle income young adults is now closer to those with low incomes than those with high incomes. Some 27% of middle income 25 to 34 year olds owned a home in 2015/2016 compared to 8% of those with low incomes and 64% of those with high incomes.

It points out that 20 years ago, middle income young adults had home ownership rates much more similar to high income young adults and says that this sharp decline in home ownership among young adults has been driven by the rapid rise in house prices relative to their incomes.

Over the past two decades average house prices have grown around seven times faster than the average incomes of young adults. The average UK house price was 152% higher in 2015/2016 as in 1995/1996 after adjusting for inflation, but the average after tax family income of 25 to 34 year olds grew by only 22% in real terms over those 20 years.

For nearly 90% of 25 to 34 year olds, average house prices in their region are more than four times their annual after tax family income and for nearly 40% house prices are more than 10 times their income.

However, 20 years ago, less than half of young adults faced house prices of more than four times their income, and less than 10% faced house prices of more than 10 times their income.

The institute says that this dramatic rise in house prices relative to the incomes of young adults fully explains the falls in home ownership. Comparing a young adult today with a young adult 20 years ago whose income was similar relative to house prices, they are equally likely to own their home. The fall in home ownership is entirely explained by the fact that young adults’ incomes are now much lower relative to house prices on average.

‘Home ownership among young adults has collapsed over the past 20 years, particularly for those on middle incomes. For that group, their chances of owning their own home have fallen from two in three in the mid-1990s to just one in four today,’ said Andrew Hood, a senior research economist at the IFS.

‘The reason for this is that house prices have risen around seven times faster in real terms than the incomes of young adults over the last two decades,’ he added.