The future of UK residential property: are we at a tipping point?

The future of UK residential property: are we at a tipping point?
 
For all of my life, the UK has held to a culture of owning your own home as being the best investment you will ever make and seen as far better than renting. Get an education, get a job, get married, buy a property, have a family, retire. This is the “normal” path people are supposed to follow, with owning a house being the linchpin of stability and security.
 
However, the UK has been in the midst of a housing crisis for as long as I have been working in the real estate space, the best part of two decades, with its origins being traced back to the 80s, when I was born. The main issue: demand consistently outstrips supply.
 
Despite promises of action and solutions, successive governments have failed to bring the number of houses being built up to the required level. The result: housing is becoming increasingly unaffordable for the average person and individuals/couples are buying their first home much later in life than the generations before.
 
I think we are at a cultural tipping point. The long held aspirational norm of buying your own home instead of renting for life is coming to an end. As a result, we are about to see a huge swing away from home ownership in the UK. Let me explain.
 
In the last two decades, as house prices have rose faster and faster, and various crises have hit the country, governments have tried to help people onto the housing ladder through schemes such as Help-to-Buy and Land Transaction Tax holidays. But these schemes only seem to have increased prices, and consequently made owning a home even more unattainable for many.
 
So many young people have faced an enormous challenge saving up enough money for a deposit. A little over a decade ago I needed around £30k for a deposit on my first home purchase. The average today is more than double that. The majority are unable to save that amount of cash without the bank of mum and dad and/or a long period of saving.
 
Even if they can scrape together a deposit, they often need to look well outside the areas they would ideally like to live in. The increasing pace of gentrification in certain ‘desirable’ areas quickly turns these previously affordable areas into unaffordable ones.
 
For those who were lucky enough to save a deposit, thanks to a decade of exceptionally low borrowing rates, they were able to secure a mortgage. Following the global financial crisis, the Bank of England base rate has been below 1%. Previously, 5% was considered low by comparison to the previous four decades. Essentially, this low borrowing cost environment has kept the housing market going.
 
Now with a cost of living crisis upon us and the Bank of England now starting to push up rates at pace in an effort to cool inflation, the low borrowing cost environment is coming to an end.
 
What about those that were not able to save up a deposit? Studies have shown that less than 30% of millennials have been able to own their own home by age 30, compared to over 50% of baby boomers. It is estimated that a third of millennials will never be able to own their own home and half will have to rent into their 40s. With no sign of that trend ending, what will the studies show for generation Z and generation Alpha in a few decades time? (source: abc finance Limited – The truth behind Generation Rent)
 
In the face of increasing purchase prices and debt, and other societal shifts, I suspect many young people have abandoned the idea of buying their own home. In fact, it is very likely some may not have the dream in the first place.
 
There is so much life to be lived in the world these days. Fun and engaging things to do. Places to visit were all you need is a passport, mobile phone and a credit card. Why choose to save up for a home you might never be able to buy and miss out on all that living.
 
People are having children much later in life as standards of health improve and people aren’t so attached to the place they grew up in anymore. They are perfectly comfortable living, working and raising a family anywhere in the world.
 
Add to this the impact COVID has had on how people see work and location. So many jobs are now conducted remotely, or at least partially remotely. Many young people don’t see the benefit of spending money and time commuting into an office. They want the freedom to live and work wherever they choose, and they have experienced a period which has convinced them they can do that without sacrificing their careers. All they need is a computer and an internet connection, and they are set. No need to pin themselves down to one location. So why buy bricks and motor and tie yourself down?
 
The rules of the game have changed and buying a home is no longer the golden aspiration it used to be. Aspirations aside, we are also seeing more practical and structural changes. We are seeing an exponential trend towards servitisation of products. We’ve already seen this with cars. Everyone used to save up and buy their car outright. Few people do that now. Most pay a regular fee out their income to lease a brand new car and replace it with a new one when the lease is up, and even then, many don’t wait that long.
 
We used to buy our favourite movies on video or DVD. But now, our subscription to Netflix, Amazon Prime, or other streaming services give us access to so much media entertainment, there’s simply no point in owning content anymore. Even healthcare is becoming a service through personalised subscriptions like vitamin and supplement deliveries, and digitalisation of services such as prescriptions.
 
All these factors are pushing current generations away from home ownership. If one generation turns away from home ownership, becoming the so-called ‘generation rent’, then that culture is likely to pass on to the next generation and the next, leading to a lasting, maybe permanent, change in attitudes.
 
This is the tipping point I previously mentioned. We don’t save up a capital sum to buy something anymore. We go online and agree to pay a regular sum out of our income to have use of something that someone else owns. We have use of it immediately, there is no need to wait. The world is moving away from owning things in so many aspects of life and I don’t think housing will be any different.
But somebody will own the houses. If occupiers don’t own them, who will? What is the impact on investors and those that have their wealth tied up in their homes?
 
I think we will see a great consolidation of housing, with a variety of investment funds, who have the sufficient capital, buying up residential property. They’ll then hand those properties over to a housing manager to make sure they meet the quality and Environmental Social and Governance (ESG) demands of tenants. If people are going to rent instead of buy, they will demand good quality. I can see these housing managers forming brands, much in the same way we are seeing lifestyle living brands in the Build-To-Rent (BTR) space. Before long, people will not only be loyal to a phone brand, like Apple or Samsung, or a car brand like, BMW or Audi, they will be loyal to a housing brand too. People may start to define themselves by what housing brand they choose to live in. Social groups will form based on whether you’re a ‘house brand A’ person or ‘house brand B’ person. We’ll see adverts on our streaming service telling us why we should choose their brand over another.
 
Where will the money these funds, used to purchase and run the housing, come from? Well, probably the occupiers. Because the fund and the housing will be tokenised and tradable on a public market. Instead of saving for a deposit, people will invest in fractional real estate funds and tokenised property. So, in a manner of speaking, we will have gone full circle. People will own their own home, but only a fraction of it, and a fraction of someone else’s home, and an industrial building, and so on. They’ll own a diversified portfolio of real estate tokens and pay ‘house brand C’ to live in a particular house for as long as it suits them then move on when it no longer does. Maybe I’m wrong. Maybe the future I describe is completely detached from reality. But I’m 39 years old, I have an 8-year-old son, and I’m wondering what his prospects of owning a home are. Will he even want one? I’m thinking about what advice I’ll be giving him about housing and saving in 10 years’ time. The way things are going, I don’t think it is going to be the same advice my parents gave me.