Worrying costs of renting and home ownership

Brian Hall, a UK management consultant, whose side-project The Model Works investigates the complex issues of the housing market, has grimly forecast that delays in getting on the housing ladder could cost the average first-time buyer £270,000 over their lifetime.

But those who are unable to ever purchase their own home will be a great cost to taxpayers, as they will drive up housing benefits and long-term care costs to “truly unsustainable levels.”

Fifty years ago, the average age of first-time buyers was 24, whereas today you’d be fortunate to get a foot on the property ladder before you’re 40.

The Model Works has analysed market data averaged over 30 years and calculated that the returns from investing all the savings from buying a home at 24 rather than at 37 (as is today’s average age of a FTB) could, over a lifetime, amount to well-over a quarter of a million pounds in today’s value (assuming the utilisation of a tax efficient savings scheme).

Much money would, of course, be saved through 13 years of not have to rent by buying at 24, buy also mortgage repayments are fixed to the original purchase price, whereas rents increase over time, thus the savings from home buying increase year on year. Also, tax breaks and compound interest over a longer period contribute greatly to the total.

Such numbers may leave the average modern-day renter weeping with frustration, but for those who can never afford to buy their own home, renting in the private sector all their life, the cost is enormous. Rents would continue to rise for decades after the mortgage would otherwise have been paid off, making it ever harder to save and accumulate sufficient equity.

Hall warns of  auto enrolment in workplace pension schemes, which erode disposable incomes, although opting out would result in a loss of employer’s contributions. Student loan repayments and rising rents also make it harder to save.

Previous research by The Model Works found a correlation between growth in the private rented sector and rising demand for housing benefits. Research by Partnership says that half of home owners expect to sell or let out their property to pay for their long-term care. Renters cannot do this, and are more likely to require support from the State. Hall said, “If current trends continue, the total cost of delayed home ownership and exclusion for life could cost the taxpayer tens of billions of pounds per annum, and these costs will rise as the retired population is expected to double by 2050.”

He concluded,
“Faced with the facts, it becomes crystal clear that doing nothing is not an option.”

But that is not to say that once on the property ladder all is plain sailing. The Chartered Institute of Housing (CIH) is now calling for direct government investment in homes following the publication of figures showing the cost of home ownership has increased by 70% in the last decade.

The CIH says that the first year of home ownership cost an average of £70,538 in 2012 (taking into account stamp duty, deposit, mortgage repayments and maintenance). In 2002, the average cost was £40,982.

In those same ten years, the average cost of 12 months’ rent increased 29% from £7,492 to £9,662.

CIH chief executive Grainia Long said, “Living in an affordable, decent quality home – whether that’s through owning or renting – is becoming a pipe dream for an increasing number of people.

“Our research shows the cost of owning and renting is soaring – while average wages are flatlining – putting their entirely reasonable aspirations ever further out of reach.”

The CIH are concerned with the government’s Help To Buy scheme, which they say risks making homes even more unaffordable. Ms Long said, “What we need to see from the government is direct investment in building new houses, which would help make things more affordable for everyone.”

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