CML Housing Finance Issue 02 2012 Maturing attitudes to homeownership Echoing the pattern seen after the late 1980s housing boom, short- and longerterm home-ownership aspirations appear to have fallen back a little in recent years. Despite all the economic and financial difficulties stemming from the credit crunch, 81% of British adults hope to be home-owners in ten years time. The bedrock desire for home-ownership appears to be persisting, with all age groups having a dominant preference for home-ownership longer-term. Nearly three-quarters of adults (74%) would like to be home-owners in two years time. Aspirations are much higher than current rates of home-ownership, especially among the under 35s, but it is far from clear how people will make the change. The tenure that people already have strongly influences their short-term preferences. The vast majority of existing home-owners want and expect to continue as homeowners in two years time. Less than a fifth (17%) of today s 18-24 year olds are home-owners. While most ultimately aspire to home-ownership, there is a degree of realism and for most getting on the ladder is very much seen as a long-term goal. Most of those who are renting privately or sharing with family or friends are under 35. More than a half of such households (54%) would like to become homeowners over the short-term, but only a third (33%) expect it to happen. Background This short article offers fresh insights into how household attitudes to home-ownership are changing, drawing on market research undertaken for us by YouGov Plc in March 2012 1. Author Bob Pannell Chief economist Editor Caroline Purdey Market & data analyst We have tracked tenure aspirations using similar questions in market research surveys going back to the mid-1970s. These market research results may not be exactly comparable over time, because of changes to sample sizes and methodologies, the use of different research companies and slight alterations in question wordings. But they do 1 YouGov carried out an online survey of 2005 adults. Fieldwork was undertaken between 23rd - 26th March 2012. Results from the survey have been weighted to be representative of all GB adults. June 2012 1
CML Housing Finance nevertheless serve to highlight and contextualise key trends in tenure aspirations over time. We don t try to draw policy conclusions from the findings we present here, but we do infer that the ability and willingness of younger adults to become home-owners will continue to exercise a material impact on overall tenure patterns and housing finance. For ease of reference, Tables 1-4, showing how 2- and 10-year tenure preferences have changed over time, are featured at the end of the paper. Overall attitudes to home-ownership We have now conducted two surveys since the credit crunch, and this helps to improve our understanding of how tenure aspirations and particularly the desire for homeownership vary under different economic and housing market conditions. There are two questions that we have consistently asked over the years the tenure respondents would most like to have in two years time and a similar one looking ten years ahead, but conditioned on things going as well as the respondent can expect. The first question gives a sense of what is desirable but realistic over the near-term (and as we shall see later, is strongly conditioned by existing tenure patterns), while the second question serves as a barometer of underlying aspirations. Whilst circumstances will prevent some respondents from satisfying their longer-term aspirations, the difference between the aggregate 10-year measure and current tenure patterns may be thought of as an aspirations gap. Chart 1 illustrates how home-ownership preferences have moved over the past 30 years, alongside actual home-ownership rates. As can be seen, short- and longer-term aspirations to be a home-owner have been consistently higher than the starting point, that is, more people have wanted to be homeowners in the future than was already the case. In the past, the existence of such a positive aspirations gap came to be seen as a useful indicator of the likely direction of travel in tenure patterns. Today, the picture seems much less straightforward. 2 June 2012
Maturing attitudes to home-ownership With the growth of buy-to-let activity and the associated renaissance of the private rented sector over the past decade or so, the actual rate of home-ownership peaked some years ago and has eased back subsequently. Chart 1: Home-ownership preferences in two and ten years time, Great Britain, % 85 80 75 70 65 60 55 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 Actual 2 year 10 year Source: Actual figures Department for Communities and Local Government, survey results as Table 1. Notes: Post 2010 home-ownership rates are CML estimates. Figures have been interpolated for those years when surveys were not carried out. We can also see from Chart 1 that the recent peak in the popularity of home-ownership appears to more or less coincide with the 2007 peak in the housing market. This echoes the pattern we saw during the late 1980s and early 1990s, when the strong performance of the labour markets and the wider economy powered high levels of household confidence. In both cycles, strongly rising house prices exacerbated affordability pressures, but also offered the prospect of significant capital gains for those getting onto or moving up the housing ladder. This particular investment motive appears to have waned in line with easing house prices. As one might expect, indicators of short-term sentiment appear to be more sensitive to changes in the immediate economic environment and to give earlier warning of adverse shifts in sentiment. When we asked about tenure aspirations back in 2010 2, there was a rather ambiguous set of results, with a dip in the proportion of respondents wishing to be home-owners in two years time, but a new record level of support for home-ownership (85%) longer- 2 YouGov carried out an online survey of 2056 adults. Fieldwork was undertaken between 1st - 3rd September 2010. The figures have been weighted and are representative of all GB adults. June 2012 3
CML Housing Finance term. This time round, both measures have fallen back modestly, to 74% and 81% respectively. Contextually, this loss in appetite for home-ownership is likely to be closely tied to the economic and financial difficulties that the UK and many other countries are experiencing. The previous housing market downturn cast a very long shadow, and this suggests that we will not know for many years whether the British love affair with homeownership is cooling. The fact that any changes would be taking place against the backdrop of a decline in actual home-ownership rates adds a further complication. Tenure preferences by age All age groups have a dominant preference for home-ownership longer-term, but near term views differ enormously. As Chart 2 illustrates, age has an important bearing on two year preferences. Chart 2: Preference for home-ownership in two and ten years time, by age group, % of respondents 100 80 60 40 20 0 18-24 25-34 35-54 55-64 65 and Over All Adults Actual 2-year 10-year Source: YouGov 2012 At younger ages, there is a substantial proportion of households who aspire to homeownership ultimately, but who are not necessarily looking to achieve this tenure in two years' time. For most 18-24 year olds, home-ownership is distinctly a longer-term goal. The gap between two and ten year aspirations narrows considerably as we look at older age groups, and in fact becomes slightly negative amongst the 55 and over age groups. This dimming appetite for home-ownership is a long-standing feature of our tenure preference surveys. The negative gap reflects issues such as the perceived ability of people to maintain their homes as they move into and through retirement and the 4 June 2012
Maturing attitudes to home-ownership longer-term suitability of homes as mobility, physical well-being and other concerns surface. As Table 3 shows, the short-term desire to be a home-owner appears to have edged modestly lower across all age groups. For longer-term aspirations (Table 4), the picture is a little more complicated, with a slightly weaker preference for home-ownership across most age groups, little apparent change amongst the 25-34s but a marked downwards shift among 18-24 year olds. Combining the results of the 2010 and 2012 surveys, both the short- and longer-term home-ownership aspirations of young adults appear to have fallen back in recent years. This should perhaps be interpreted most appropriately as unwinding an unrealistic desire for home-ownership that characterised the 2006-7 period. So who wants to be a home-owner? As we have already mentioned, all age groups show a very strong preference for homeownership longer-term. But near term views are closely conditioned by the type of tenure that people already have. Table 5 provides a snapshot of what tenure respondents aspire to, broken down by their current tenure. Table 5: Tenure preferences by current tenure Preferred tenure in: Current tenure Home owners Private renters Two years Living with relatives or friends Social housing Home owners Private renters Ten years Living with relatives or friends Social housing Home owners 92% 1% 1% 1% 91% 1% 0% 2% Private renters 47% 37% 3% 4% 76% 12% 0% 4% Living with relatives/friends 48% 14% 15% 5% 78% 5% 1% 4% Social housing 36% 3% 2% 48% 43% 2% 1% 44% All tenures 74% 7% 3% 8% 81% 3% 0% 7% Source: YouGov 2012 Note: 1. Social housing refers to renting from a local authority, council, housing association, housing trust or some other registered social landlord. 2. For clarity, don t knows and other tenure choices are not shown June 2012 5
CML Housing Finance These results are broadly similar to what we saw back in 2010. Nearly all the desired moves across tenures are into home-ownership, although moderately less enthusiasm for home-ownership was expressed than two years ago. Not surprisingly, very few existing home-owners wish to have a different tenure in the future, short- or longer-term. By contrast, the majority of private sector tenants appear to view renting as a temporary state. Nearly half hope to become home-owners even in the short-term and this climbs to three-quarters longer-term. The vast majority of those sharing with parents, other relatives or friends (8% of respondents) are relatively young and mostly living at home. In some senses they resemble those who are renting privately, with similar proportions hoping to become home-owners short- or longer-term. Council and housing association tenants are more strongly attached to their current tenure (48%), but even so a significant minority are attracted to the idea of homeownership longer-term (43%). Chart 3: Rate of home-ownership for 18-24 year olds 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 1984 1993/94 1998/99 2001/02 2004/05 2007/08 Source: CLG English Housing Survey (2008/9 onwards); CLG Survey of English Housing (1993/4 to 2007/8), DoE Labour Force Survey Housing Trailer (earlier). There is of course a close link between age and current tenure. 6 June 2012
Maturing attitudes to home-ownership As Chart 3 illustrates, we have seen a much lower incidence of home-ownership amongst younger adults over the past 20 or so years. Today, barely a fifth of 18-24 year olds are home-owners (17% according to our latest YouGov survey) and much larger numbers are renting privately (37%) or living with their parents or other family or friends (34%). This in turn is strongly influencing the short-term preferences of younger adults (see Chart 4). Chart 4: Tenure preference in two years time, by age of respondent 100% 80% 60% 40% 20% 0% 18 to 24 25 to 34 35 to 54 55 to 64 65+ Home ownership Private renting Living with parents etc Social housing Other/don't know Source: YouGov 2012 Is home ownership realistic? As one might expect, not only do most home-owners wish to continue as home-owners, but the vast majority also expect to be so in two years time (see Chart 5). We have seen earlier that those who want to become home-owners over the short-term are mostly younger adults and/or those who are currently renting privately or living at home (or with other relatives and friends). Whilst affordability pressures, and especially deposit constraints, clearly play a role, there continues to be considerable debate about the interplay between the desire for independence, lifestyle choices and economic necessity, and how these factors shape the tenure decisions of younger adults. June 2012 7
CML Housing Finance This section briefly explores how realistic people view their short-term hopes to become home-owners. It seems reasonable to assume that in most cases such individuals are hoping to become home-owners for the first time, but there will of course be some looking to return to home-ownership after an interval. Chart 5: Perceived likelihood of being home owner in 2 years' time, by age of household and current tenure 55+ 45 to 54 35 to 44 25 to 34 18 to 24 Social housing Living with parents etc Private renters Homeowners -100% -50% 0% 50% 100% Very unlikely Fairly unlik ely F airly likely Very likely Base: Those wanting to be home owners in two years time. Source: YouGov 2012 Note: Those seeing home ownership as neither likely nor unlikely are not shown. Chart 5 shows how respondents rate their chances of continuing as or becoming homeowners in two years time. As we can see, home-ownership prospects look far from certain for those not already in the tenure. Nearly half of those renting privately or sharing accommodation with family or friends wanted to be home-owners in two years time (47% and 48% respectively), but of these only a minority - 21% and 42% respectively - thought that it was likely or very likely to happen. While we can only speculate as to why those living with family or friends are more confident, the probability that some are paying a nominal rent at most (and so can build up more savings) is likely to be a significant part of the explanation. Even fewer just 13% - of social housing tenants wanting to become home-owners thought it likely to happen. 8 June 2012
Maturing attitudes to home-ownership Chart 5 also shows the close correlation of perceived home-ownership prospects with age. The 18-24 year olds are the only age group where there is a negative net balance of those expecting to become home-owners in two years time, that is more young adults think that this is unlikely rather than likely to happen. The net balance becomes progressively more positive with older age groups. Whilst we are only reporting here on the perceptions of those individuals aspiring to home-ownership, the findings neatly return us full square to one of the key challenges in the housing market the uncertain ability of younger adults to become home-owners in the foreseeable future. Concluding remarks Our latest consumer research demonstrates that home-ownership remains very much the tenure of choice for most people. Much of the immediate potential for growth in home-ownership rests with younger adults, but there is an open question as to how realistic their aspirations to become home-owners are. Among those who would like to become home-owners within the next two years, there appears to be a degree of realism about the chances of getting on the housing ladder. The immediate economic and financial landscape is not very promising, and so it seems likely that many potential first-time buyers will continue to rely on the bank of mum and dad, for direct help with the necessary deposit and/or indirect support via subsidised accommodation while savings can be built. Reflecting affordability pressures and the greater choice available within the private rented sector, actual home-ownership rates have been edging down over recent years. While this has the potential to influence tenure aspirations ultimately, we see no evidence to date that the bedrock desire for home-ownership is lessening. June 2012 9
CML Housing Finance Table 1: Preferred tenure in two years time, % of respondents Sample size Owner- Occupied Council Renting Housing Association Renting Private Renting % % % % 1975 1,597 51 32 na 12 1983 2,501 77 16 na 5 1986 2,455 77 17 na 4 1989 2,465 81 12 2 3 1991 2,260 77 13 2 6 1996 2,009 77 15 3 3 1998 2,329 78 14 4 3 1999 3,132 74 17 3 4 2000 3,310 74 12 3 5 2001 3,391 72 12 4 6 2002 3,206 76 11 3 4 2003 2,525 72 10 3 6 2004 1,986 72 12 4 7 2007 2,814 78 9 3 4 2010 2,056 76 4 3 9 2012 2,005 74 4 3 7 Source: YouGov (2010 onwards), MORI (1996-99), BMRB other. 10 June 2012
Maturing attitudes to home-ownership Table 2: Preferred tenure in ten years time, % of respondents Sample size Owner- Occupied Council Renting Housing Association Renting Private Renting % % % % 1975 1,597 62 25 na 6 1983 2,501 78 15 na 3 1986 2,455 80 13 na 2 1989 2,465 83 11 1 2 1991 2,260 84 10 2 2 1996 2,009 79 12 2 1 1998 2,329 80 10 3 1 1999 3,132 78 13 3 1 2000 3,310 83 8 2 1 2001 3,391 81 9 2 2 2002 3,206 82 8 2 2 2003 2,525 81 8 2 3 2004 1,986 80 9 2 3 2007 2,814 84 6 2 2 2010 2,056 85 3 2 3 2012 2,005 81 4 3 3 Source: as Table 1 June 2012 11
CML Housing Finance Table 3: Home-ownership preferences in two years time, by age group, % of respondents 65 and 18-24 25-34 35-54 55-64 All Adults Over % % % % % % 1975 41 60 58 48 42 51 1983 79 89 84 71 56 77 1986 73 88 86 73 61 77 1989 79 89 90 76 64 81 1991 60 83 87 82 71 77 1996 55 79 86 76 66 77 1998 49 80 85 80 68 78 1999 59 77 84 74 60 74 2000 43 76 82 85 70 74 2001 39 74 80 81 76 72 2002 40 78 79 79 78 71 2003 37 76 83 85 75 72 2004 43 66 78 84 74 72 2007 50 75 83 87 80 78 2010 42 75 81 85 80 76 2012 40 74 80 83 76 74 Source: as Table 1 12 June 2012
Maturing attitudes to home-ownership Table 4: Home-ownership preferences in ten years time, by age group, % of respondents 65 and 18-24 25-34 35-54 55-64 All Adults Over % % % % % % 1975 79 77 65 49 41 62 1983 92 93 85 66 51 78 1986 89 93 88 70 54 80 1989 95 93 90 75 59 83 1991 90 91 89 80 64 84 1996 84 86 88 74 61 79 1998 83 90 86 81 60 80 1999 86 89 86 73 57 78 2000 83 88 86 77 64 80 2001 80 87 85 80 71 81 2002 78 87 86 82 71 81 2003 76 87 87 84 70 81 2004 77 86 83 83 71 80 2007 84 86 86 87 78 84 2010 88 87 87 84 75 85 2012 77 87 83 81 74 81 Source: as Table 1 June 2012 13
CML Housing Finance Further information on Housing Finance Housing Finance is an authoritative online journal which provides in-depth articles on a wide range of mortgage related issues. For free online access to other recent articles and a subject index see http://www.cml.org.uk/cml/publications/research. For further information on Housing Finance articles contact the editor Bob Pannell at bob.pannell@cml.org.uk. Copyright 2012 Council of Mortgage Lenders. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic or mechanical. Photocopying or other means of recording are forbidden without the prior written permission of the publisher. The Council of Mortgage Lenders North West Wing, Bush House, Aldwych, London WC2B 4PJ Telephone: 0845 373 6771 Fax: 0845 373 6778 Every effort has been made to ensure the accuracy of information contained within the report but the Council of Mortgage Lenders cannot be held responsible for any remaining inaccuracies. The opinions expressed in this report are the responsibility of the authors alone and are not necessarily the views of the Council of Mortgage Lenders. ISSN:0955-3800 14 June 2012