It is no secret that the UK is going through something of a housing crisis. No group has been more severely affected than those aged 20-34 – the so called “Millennials” or “Generation Y”.
For the first time in modern history, outside of wartime, young people are currently earning less than the national average. This fall is set to continue drastically when the ‘National Living Wage’ is introduced and the labour of those under the age of 25 is further devalued.
A significant shortage of affordable housing stock is compounding the problem. It is estimated that 250,000 homes need to be built per year in order to keep up with population growth. This is far in excess of the Government’s stated target of 200,000 completed dwellings per year in this Parliament. The actual total of 160,000 completed dwellings in 2015 is clearly deficient.
The last time the UK even got close to building the number of houses needed was the extensive post-war council housing programme. The current Government is unwilling to follow suit leaving it up to private housing developers to fill the gap.
The lack of supply, the soaring cost of buying and the reduced spending power of this generation has created something of a perfect storm. House prices will continue to outpace wage increases for the foreseeable future.
Recently the Resolution Foundation has warned that 9 out of 10 people on modest incomes under the age of 35 will never own a home. If there are not enough affordable homes, people will continue living with their parents or renting in perpetuity.
The Office for National Statistics says that 3.3 million 20-34 year olds live with their parents. The vast majority of the rest make up “Generation Rent”. We are starting to see the rise of “Buy-To-Rent” properties in reaction to this.
Renting is not new, but the idea of almost an entire generation being unable to ever afford a home of their own is worrying and will require changes to the norm.
Currently the standard contract when renting covers 6 or 12 months but this is likely to change in the future. One of the main attractions of buying a property is the long term stability it affords. However this does not imply that renters are not concerned with this. As more and more people are faced with the possibility of renting forever, it is only natural that they will want better long term assurances.
Leading housing charity and pressure group Shelter have long been campaigning for a ‘Stable Rental Contract’. This involves giving the tenant the option to stay for 5 years, the landlord to give 2 months’ notice if they terminate the contract and predictable rent rises linked to inflation rather than the vagaries of the housing market.
Longer tenancies with rents linked to inflation also come with clear benefits for landlords. A long term tenant who has a good relationship with the landlord is obviously preferable to a rotating cast of new faces. A high turnover costs money and comes with no guarantee the new tenant will be reliable.
An agreed longer term contract can also lead to increased rent payments to the landlord. Studies suggest that most landlords rarely raise the rent for tenants who have been in place for a long time as the risk of losing a reliable tenant is too great and this can lead to and undervalue rent arrangement. Good for the tenant, not so much for the landlord. A pre-agreed longer term contract where rents are tied to inflation means that everyone knows where they stand from the start and increased rents will not cause a good tenant to leave.
There are signs that politicians concerned with housing policy are starting to respond to renting being the new, long term reality for many.
In the run up to the 2014 General Election, the Labour Party committed to introducing longer term rental contracts as the standard. More recently, the Department for Communities and Local Government has begun gently pushing their Model Tenancy Agreement specifically designed for those entering into tenancies of 2 years or more.
It is likely that further action will follow and long term tenancy agreements will become more common in the future as the gap between wages and house prices becomes more severe and the rental sector continues to expand.