The Housing Crisis of the Young

There was a time, not very long ago, when housing was high on the political agenda, and understandably so.¹ By 2008, the inadequate financing of it – first in the United Kingdom and then massively in the United States – had triggered the worst economic crisis in over six decades. The bitter fall-out from that crisis –the foreclosures that came with the house-price collapse, the involuntary unemployment caused by the resulting credit-crunch, and then the extra foreclosures that came with that unemployment – kept public policy on housing front and center both in Washington and in London. But no longer.² Now the financial crisis is nearly a decade back in time, and the worst of the foreclosure crisis that accompanied it has largely played itself out. The talk now is of new problems and of new voting blocs.³

Not least among those new blocs are the millennial generation, and their supposed appetite for a new form of radical politics. When political commentators on both sides of the Atlantic seek an explanation of that unexpected radicalism – when they comment on the support of young voters for a Bernie Sanders in the United States or for a Jeremy Corbyn in the British Labour Party – they talk regularly about unemployment, inequality, and stagnant wages. They do not talk so regularly about housing, and they should.

I

For the legacy of the housing crisis remains firmly in place – largely undiscussed but still potent, hidden deep beneath the surface of contemporary politics. It is a legacy that falls most heavily on the young. Four features of that legacy are particularly relevant now.

THE LINGERING FORECLOSURE CRISIS

The foreclosure crisis has eased, but it has not gone away. The initial number of those caught up in the foreclosure of their homes was truly enormous. The number of house foreclosures in the United States in 2008 exceeded 3.2 million. In 2010 it was 2.9 million. Even now there are still over 900,000 houses in some form of foreclosure in the United States,⁴ and more than 5 million mortgaged houses remain trapped in negative equity.⁵ The equivalent UK figures in a much smaller housing market are similarly striking. There were over 40,000 UK house repossessions in 2008, 48,900 in 2009⁶ and still 21,000 in 2014. That left almost a quarter million UK mortgages in arrears in 2010, and over 116,000 still there by the end of 2014:⁷ at a moment when one UK mortgage in every seven was over four and a half times bigger than the income sustaining it,⁸ in a housing market in England and Wales in which average house prices are now nine times higher than incomes (and in more desirable areas, are up to 20 times higher).⁹ In both countries, those caught up in foreclosure still carry heavy financial burdens because of their earlier losses, and still find their return to house ownership impaired. Indeed, in the US “less than one-third of families who lost their homes to foreclosure…in the past decade are likely to become homeowners again.”¹⁰

With the wisdom of hindsight, it is clear that in neither economy did public policy respond to the crisis with anything like the appropriate degree of aid or speed. Concerns about the moral hazards involved in giving special treatment to struggling house-buyers left the Administration’s Home Affordable Modification Program (HAMP) woefully inadequate in the United States,¹¹ and the UK lacked even that degree of initial extra direct public support for private home ownership. The immediate crisis triggered in the UK just modest changes to the stamp-duty paid on new house purchases, and a Householders Mortgage Support Scheme that actually helped just 34 households in its first year of operation.¹² Even HAMP, facing as many as four million troubled borrowers at the peak of the crisis, helped less than 900,000 of them re-negotiate their mortgages in its first six years of operation – in part because it handed the administration of its relief over to the very banks that had initially triggered the crisis, and which so far have rejected 72% of all the requests for help submitted to them.¹³ As the editorial board of The New York Times recently put it: “the promise of widespread relief for homeowners facing foreclosure has never been realized.”¹⁴ Instead, just under three-quarters of the mortgage-interest tax deductions claimed annually go to “homeowners with… incomes greater than $100,000”¹⁵ – go, that is, to those particularly well-placed to pay their own mortgages without public assistance. Little wonder then that faith in the efficacy of the political system should now be so low.

THE ON-GOING HOUSING CRISIS

The more general housing crisis also lingers on. Indeed, for the millennial generation at least, that crisis is getting steadily worse. For the main institutional consequence of the failure of private financial institutions – Savings & Loans in the US and building societies in the UK, and banks in both – to properly manage housing finance prior to 2008 is a supply of mortgage funds now dominated by publicly-accountable bodies. Housing finance in the United States was effectively nationalized – taken into public ownership – in 2009, and has remained there since. The UK government took several building societies into public ownership, and temporarily established majority share-holding in the most vulnerable of the banks. So, on both sides of the Atlantic, vehicles existed immediately after the crisis, and exist now, for imaginative public policy here: but they are not being used for that purpose or in that manner. Instead they are being used to re-introduce conservative underwriting standards into housing markets made unstable prior to 2008 by their erosion. In the US, we are back to a “20 percent deposit, and no more than 30 percent of gross monthly income” kind of housing finance regime. In the UK, new and more stringent rules came into force in April 2014, obliging mortgage lenders to carry out thorough checks into the spending habits of both homebuyers and people looking to remortgage, to make sure that their loans are truly affordable.¹⁶ But with stagnant wages and low starting salaries for young workers in particular, that return to conservative underwriting standards effectively closes the door on house purchase for more and more members of both the millennial generation and of the generation (“X”) that preceded it.

Even with record low mortgage interest rates in both countries, the demographic profile of home ownership continues to age. In the United States, the nation’s home-ownership rate is now down to 63.7 percent from its 2004 peak of 69 percent – the result of the interaction of at least four things: tougher underwriting standards; house prices rising roughly twice as fast as wages;¹⁷a lack of equity among potential buyers in their 40’s; and a similarly-induced lack of deposits among cash-strapped 20 year olds.¹⁸ The Urban Institute estimate that as many as 1.2 million would be home-buyers are currently shut out of the US housing market because of tougher underwriting standards alone.¹⁹ In the UK, with house prices back at record highs and their rate of increase outstripping that of wages, one recent study suggested that it will take low- and middle-income families a staggering 24 years to accumulate the deposit for a mortgage.²⁰ The equivalent figure in the 1990s was just three years.²¹ So it is hardly surprising that currently 48% of all first-time buyers in the UK find that they need help from more senior members of their families to generate that deposit;²² that only solid middle-class families can provide that help; or that right now, “the typical 30 year old is 30 percent less likely to own a home than was the case 15 years ago.”²³

PROBLEMS IN THE RENTAL SECTOR

The result in both countries has been an ever greater number of people pushed into the rented housing sector – in the UK, particularly young adults 18-34 whose parents are also renters (and so lack the savings to establish even their own deposit)²⁴ and, in the US, young adults “held back by problems pinning down a job, huge student debt burdens and difficulties saving for a big down-payment.”²⁵ That might not matter so much if the rented sector was working well, but it is not. Instead, the crisis in home-ownership is now spreading into the rented sector. In a whole string of US and UK cities, the cost of renting houses, apartments or even rooms is currently rising at a rate faster than the incomes of most of those needing to rent them; so that in relation to housing, as elsewhere in Anglo-American labor markets, those in the middle (in housing terms, those too poor to buy their own home but too prosperous to qualify for social housing) are being squeezed heavily.

In the United States, the number of single family home rentals increased by 3 million between 2006 and 2013, with almost half of those renters now having housing costs that take up more than 50 percent of their incomes.²⁶ (The optimal percentage is normally said to be 31-34 percent.) That number of “severely cost-burdened” renters (11.2 million) is expected to grow to 15 million by 2025.²⁷ This is a burden that falls particularly heavily on the young. A recent American study found that one in five millennial with children are currently impoverished, their finances drained by rent, student debt and childcare costs.²⁸ Another report found that “higher rent costs are making the process of saving for a down-payment very, very difficult.”²⁹ An equivalent UK report recently found adults aged 18-34 facing “the prospect of being permanent renters,” with the average first-time buyer in the London housing market having to spend the equivalent of $100,000 on rent while saving for a mortgage deposit. Both economies, that is, are currently generating housing markets in which “large numbers of potential first-time buyers…effectively end up spending on exorbitant rents more than enough for a first deposit several times over.”³⁰

Moreover, even getting into (and then staying in) the rented sector is becoming harder for young adults, as demand for accommodation continues to outstrip supply. The Pew Research Center recently found that in the United States “in terms of sheer numbers, there are more young adults today than there were when the recession hit – the 18- to 34- year-old population has grown by nearly 3 million since 2007. But the number heading their own households has not increased.”³¹ Instead, while very young adults (18-24) are marginally less likely still to be living back with their parents now than in 2013, those aged 25-34 are more likely to be there still: one in six older millennial men currently living at home.³² And similarly in the UK, a well-publicized crisis in the availability of student rentals has combined with a less-publicized one for young professionals to leave England in 2015 with as many as 3.5 million households containing “a concealed adult or couple.”³³ Even staying in the rental sector is not that easy either.³⁴ Currently in the UK, for example, “almost 20 percent of in-work renters rely on housing benefit to pay their rent – half a million more people than” in 2010; ³⁵ and tenant evictions are running at a six-year high, the product of rising rents on the one side and of cuts in housing benefit on the other.³⁶

THE INADEQUATE PROVISION OF SOCIAL HOUSING

Then there is the steady failure of governments to sustain sufficient levels of affordable housing. Even in the United Kingdom, where the tradition of publicly-provided housing for the low-paid is better established than in the United States (or at least was until Margaret Thatcher waged war on it in the 1980s) the situation remains bleak, and is now poised to get worse. The current Conservative Government’s main answer to the UK’s housing crisis has been its “right to buy” program, which has enabled those in social housing to purchase their property. But that policy has recently been expanded without any commensurate increase in the stock of social housing for those unable to do so. In fact, a staggering 40% of those in England taking advantage of the right-to-buy turn out to be not private tenants seeking home-ownership, but private investors seeking rental incomes inflated by housing subsidies to the low paid/welfare recipients that now total £24 billion (and are equivalent to a quarter of the UK’s total budget deficit).

Instead of building more social housing on an adequate scale to ease the overall housing burden, the current Tory answer would appear to be one of cutting those subsidies: not least by capping the amount tenants can earn before they must begin paying full market rent; and by introducing the so-called bedroom tax. If you live in social housing and have a spare bedroom, you must now take a cut in housing benefit and find a lodger to make up the short-fall (!) Such cuts are now putting the genuine key providers of social housing (housing associations) into increasing financial peril,³⁷ while pricing the poor out of many metropolitan centers,³⁸ and increasing the number of those defined in the UK as “statutorily homeless” (that is, in real/imminent threat of eviction). The number of the statutorily homeless in the UK is 17 percent higher now than it was in 2010.³⁹ “Targeting the poor for self-eviction” is how James Meek recently described it.⁴⁰

In the United States, the current situation is even more desperate. The federal government currently spends more than $270 billion a year in housing aid, the vast majority of which does not go to the poor.⁴¹ The bit that does – primarily through HUD programs on housing assistance (at over $50 billion in 2009) – is invariably means-tested, and beset by funding limits. In many communities in consequence, the waiting lists for housing assistance are long – up to several years – and in some cities housing authorities no longer add new families to the list because there is simply no prospect of newer families receiving an apartment in the foreseeable future. The parallel HUD-financed programs of urban renewal continue to be undermined as vehicles of social progress by the racially-structured nature of unemployment in the United States, and by the associated white flight to America’s suburbs. The result is a persisting and enormous gap in access to housing in the United States organized on the basis of race – one in which “a poor back family …is much more likely than a poor white one to live in a neighborhood where many other families are poor too, creating what sociologists call the ‘double burden’ of poverty.”⁴²

II

At least three of the structural problems recently noted in the UK housing market apply equally to its US equivalent: as Angus Armstrong put it, “First, more and more houses are being bought for investment purposes which raises the cost of housing. Second, older generations appear to be ‘under-occupying’ and even hoarding homes while younger generations are struggling to move into homes. Third, the number of new homes continues to fall below the number of new families.”⁴³ The result is what he calls a lack of “inter-generational fairness,” one in which the younger generation have to spend significantly larger proportions of their increasingly limited incomes in order simply to access average quality housing. Indeed, the latest New Economics Foundation report on UK housing finds that, in spite of four million new homes being added to the housing stock since 1991, the distribution of room space within them remains massively unequal: 36 percent of the new rooms they contain going to the top 10 percent of the population (who are already generously housed) while “the least generously housed 10 percent of the population (those with the least rooms per person) gained no extra rooms at all.”⁴⁴

But what Angus Armstrong doesn’t say – but what is also clear in both countries – is that the inter-generational unfairness to which he properly draws attention is itself not equally shared. The distribution of the burden of the unfairness is itself unfair. The burden is not shared by social class even within the generation most exposed to it. On the contrary, the children of the affluent have access to family support when financing their housing that the children of less affluent parents do not. And the unfairness is not shared by ethnicity. On the contrary, the burden of financing housing, and the barriers to access to adequate housing, fall heaviest – in both the UK and the US – on ethnic minority populations. Most Americans presumably know this, even without needing to know the precise details. They know broadly that “the poorest fifth of Americans already spend more than 40 percent of their income on housing, compared with less than 31 percent for the upper fifth:”⁴⁵ and that black and Latino applicants for home mortgages continue to experience – relative to white applicants – higher borrowing costs, higher rates of denial, and higher concentrations of home purchase in neighborhoods of color.⁴⁶

Perhaps that is why as many as three in five of Americans recently polled believe that “we are either still ‘in the middle of the housing crisis’ (41%) or that ‘the worst is yet to come’ (20%).”⁴⁷ Similar levels of awareness certainly exist in the UK. But in that democratic polity, with its high levels of urbanization and its heavily-centralized politics, housing still remains high on the political agenda. In the more decentralized and suburbanized United States, however, housing is no longer as prominent a political issue as it used to be; and it needs to become so again.

It needs to become so because the housing crisis now afflicting the millennial generation is a deep and an intensifying one; and it needs to become so because a political class that responds to that crisis in an imaginative way would help draw an alienated generation back into democratic politics. The young need the housing, and all of us need the democratic input. It is time, therefore, for the baby boomers still in charge in Washington DC to lift their game on this one, and (in the interests of all of us) to put America’s housing back in order once more.

Tags: foreclosures HAMP, housing, inequality, millennials, poverty, social housing

David Coates holds the Worrell Chair in Anglo-American Studies at Wake Forest University. He is the author of Answering Back: Liberal Responses to Conservative Arguments, New York: Continuum Books, 2010.

He writes here in a personal capacity.

This entry was posted on Thursday, February 25th, 2016 at 10:53 am, was written by David Coates, and is filed under home, UK Blog, US Blog. You can leave a response, or trackback from your own site.