Everyone knows there’s a huge deficit in housing supply. We’re building too few homes. The result is upward pressure on prices, which is preventing many people from getting on the property ladder. But one lesser known effect, which is on few people’s radars, is the social care time bomb that has been created by a lack of homes being built.
Firstly, the average house price across the UK is currently £256,000 which means that you would need a minimum of £12,800 for a 5% deposit. Average annual pay is approximately £30,000 which means a person would need to borrow in excess of 8 times their average salary to buy a home. We all know that banks cap at around 4.5 times your salary so we can begin to see the problem. Due to the disparity between house prices and earnings this means a lot of first time buyers are waiting for inheritances to come from grandparents or getting it early from the bank of mum and dad. This means that they are buying their first homes at a much older age, and a significant proportion of people will likely never be able to get out of the private rented sector until maybe Grandparents and Mum & Dad have passed away.
Secondly, as a nation we are growing older and as such we require more care as we age. As the NHS and social care are already at breaking point most of that care has to be delivered to people in their homes. As people need to contribute to the cost of their care at home or pay for their care in a residential care home they tend to only have one asset that can help them with cost; their home.
We have seen a fourfold increase in people using equity release to free up cash within their homes to help pay for things as they get older and this is having the effect that inheritances are going to diminish especially as care costs rise coupled with the issue that far fewer people make the level of pension contributions that are required to generate a pension income that will see them through.
“Unless the Government finds a way to address the structural inequality in the property market, we are going to end up in a dystopian, Mad Max style society.”
Thirdly, the inheritances that younger people are likely relying on are not going to be there, and if young people can’t buy a home and are trapped in the private rented sector what are they going to use to pay for their own care when they reach an age that they’ll need it along with still having to find the rent on a monthly basis?
Realistically there’s only a few ways of fixing this, we need to build homes, a lot of homes and make them genuinely affordable, we need to build council homes so that people can have secure tenancy with a view to owning those homes in the future or with rents low enough that people are able to save the required amount to buy a home. We need incentives so more people to get into apprenticeships within the construction industry and trades. We need to change the rules around inheritance tax, property tax & income tax so we can distribute wealth a little more evenly. The big issue with this is no one tends to want to vote themselves poorer; however when you realise what a catastrophe we could be heading for, paying a few more pence in income tax would be preferable than the dystopian future which would actually be more reminiscent of the 19th century.
We know that so many young people are paying the mortgages of landlords in rent yet are unable to get the mortgage they need to buy the home that’s suitable, and unless we do something about this now we’re in for a very nasty shock come 2050.
