Turning 30 can often seem a bit of a fearful milestone, one’s care-free youth receding into the background as middle-age looms in the near distance. What better way to take the edge off than a massive cheque from the Government?
That’s one of the big ideas set out this week by the Resolution Foundation’s Intergenerational Commission, chaired by former Tory minister Lord Willetts. The thinktank proposes giving all young people a grant of £10,000 on reaching the age of 30, to be used for a deposit on a home, or for a ‘small range’ of other options, such as paying for training or investing in a pension.
On the face of it, this sounds like a cracking offer for young renters: a hand up for those stuck facing one of the most expensive housing markets in the world, and a chance at homeownership for those who don’t have the help of the Bank of Mum and Dad.
But unfortunately, like many superficially appealing proposals, it’s a bad idea and it won’t work.
The first problem with this ‘citizen’s inheritance’ is that it does nothing about the root cause of the UK’s high house prices – a shortage of housing in areas of high demand. As any renter or wannabe buyer will be able to tell you, demand for housing enormously outstrips supply, with queues forming outside of property viewings and homes regularly let the same day they’re advertised. This naturally drives up the cost of housing – through bidding wars and gazumping – and makes it increasingly difficult for young people to get a foot on the housing ladder. Giving young people a grant to put towards a home may seem like a quick fix, but without a corresponding increase in housing supply, that £10,000 just gets added to the asking price.
This is not just speculation; we have already seen a similar scenario play out with Help to Buy, which was introduced in 2013 with the aim of helping first-time buyers onto the property ladder. While plenty of young people used the scheme, it caused a surge in demand for new-build properties, pushing up prices beyond where they would have been otherwise, and ultimately ended up lining the pockets of developers and existing homeowners, not those it was intended to help. The Resolution Foundation’s proposal risks doing the same, with existing homeowners taking the lion’s share of the increase in home values.
It is also poorly targeted. If every young person gets £10,000, that’s going to end up reaching a lot of young people who already own a home, who would manage to get one without help sooner or later, or indeed already have an inheritance on the way. For those well off enough to own a home before the age of 30, they can simply bung the extra 10 grand in a pension – trebles all round!
Again, this mirrors the Help to Buy experience, where much of the money went to people who were already in a position to buy without it. Many simply used the extra support to buy a larger place than they were originally going to. A blanket £10,000 for all 30-year-olds would be nice for them, of course, but it’s hardly a great use of £7bn of public money. If you’re going to chuck money at someone, at least chuck it at someone who needs it.
The Help to Buy mess-up also showed us that policies like this are very hard to get rid of once they’re in place. If people come to expect a large sum of money on their thirtieth birthday, woe betide any government that tries to remove it, no matter how little it actually achieves its stated aims.
Much like demand-side subsidies in general, the citizen’s inheritance proposal is rearranging deckchairs on the Titanic. It may make young people feel like they are being helped, but you can’t subsidise your way out of the fact that these frustrated buyers are chasing too few homes. Ultimately, government needs to tackle the root cause of runaway price and rent inflation, and enable the building of more homes where demand and prices are highest.
That all said, the Intergenerational Commission is not totally wide of the mark. They are quite right to highlight intergenerational unfairness is one of the defining features of our economy, with younger people consistently losing out from decisions not to invest in new housing and infrastructure. Lord Willetts rightly calls for planning reforms to make building homes where they are needed easier – the only way to tackle the affordability problem at the root. And they also highlight how much better the private rented sector could be made in the meanwhile, with renters given stronger protection from eviction and routes for settling disputes in what is currently a Wild West market.
The Commission also calls for the introduction of a proportional property tax, with surcharges on second and empty homes, and cutting Stamp Duty to encourage movers. These are excellent suggestions that could do a lot to reduce the inflationary impact of the hefty subsidies that already exist: incentives to occupy the space we have more effectively, not just more money chasing after the same number of homes.
These are the sort of planning reforms we need to focus on – not a £10,000 bung that will simply inflate prices, with no material improvement on who lives where.
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