FEATURE THE GENERATION GAP The generation gap


Declining property wealth and less generous private pensions mean that today’s young adults struggle to accumulate wealth at the same rate as their predecessors. Inherited wealth could now be more important than ever. By Andrew Hood, Institute for Fiscal Studies


T “


HE CHANCELLOR, IN his Autumn Budget, acknowledged that “there is one area where young people today will rightly feel concern about their future


prospects – and that is in the housing market.” There are of course a number of reasons why one might be concerned about the falling rate of homeownership. One such reason is that since getting on the housing ladder is a key way in which UK households accumulate wealth, one consequence of the declining homeownership rate is an emerging intergenerational wealth gap: today’s young adults look to have less wealth than their predecessors did at the same age.


In the early 2000s, it became


clear that generous defined benefit pension schemes were unaffordable


To get a comprehensive picture of the wealth of different generations one can look at total net household wealth per adult: the sum of the value of any property owned (minus mortgage debt), the value of financial assets held (minus any financial debts) and wealth held in private pensions, all divided by the number of adults in the household. On this comprehensive basis, those born in the early 1980s (the early 1980s ‘cohort’) have significantly less wealth than those born in the previous decade did at around the same age – despite having about the same income. In their early 30s, the early 1980s cohort had average (median) household wealth per adult of £27,000 –


”


about half the average wealth holdings of the 1970s cohort at around the same age (£53,000). It also looks unlikely that the 1970s cohort will hold as much wealth as those born 10 years earlier did at the same age. Over the six years from 2006- 08 to 2012-14 (the latest data available at the time of writing), their average wealth rose by only £20,000 (to £73,000). To match the average wealth holdings of the 1960s cohort in their early 40s, their average wealth needs to have risen by £57,000 in the four years since.


As outlined above, the key driver of this failure of younger cohorts to match the wealth accumulation of their predecessors is a decline in property wealth. Both when comparing the 1970s and early 1980s cohorts, and when looking at the 1960s and 1970s cohorts, it is clear that the wealth differential between the two cohorts at similar ages is driven by the lower net property wealth of the younger cohort – both private pension wealth and financial wealth look similar across cohorts when they are compared at similar ages One obvious reason for the decline in the average property wealth of young adults is that many fewer of them are homeowners than was the case in the past – and this decline in the homeownership rate across generations looks likely to persist. Of those born in the 1940s and 1950s, around 80% have become owner-occupiers, but it seems highly unlikely that any of the more recent cohorts will match that homeownership rate. Looking first at the 1960s cohort, they had a similar homeownership rate to their predecessors around the age of 40 (70%) but the proportion owning a home appears to have stalled at that level over the last 10 years. The homeownership rate of the 1970s cohort also looks to have stalled over the last 10 years, but at the lower rate of around 60%. And the homeownership rate of those born in the early 1980s is substantially lower than any other post-war cohort at the same age. At the age of 30, 40% of those born in the early 1980s were owner-occupiers, compared with 55% of the 1940s and 1970s cohorts, and more than 60% of the 1950s and 1960s cohorts. The last cohort to have a similar homeownership rate to those born in the early 1980s at the same age was those born 50 years earlier in the inter-war period. The increasing difficulty of getting on the housing ladder is not the only way in which it has got harder for young adults to accumulate wealth. At the same time as house prices have risen


28 SOCIETY NOW WINTER 2018


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36