Tuesday 23 August 2011

The Two Generations Part 2

My generation

Prospect Magazine 20th July 2011 — Issue 185 Free entry
My generation cannot afford a flat, let alone a house. Why? Because the baby boomers are making it impossible.

Three generations of my family were born in the 20th century. My grandparents could become professionals without going to university. They had no family support, yet by the time my parents were born they owned comfortable detached homes with gardens.

For my parents, degrees were more important. But they did not need money from their parents. By the time they had their first child—in their twenties—they also owned a detached house with a garden.

My generation of professionals, of course, is different. We do need degrees, and many of us need help from our parents. We cannot afford a flat, let alone a house, without it. Why? Because our collective parents are making it impossible. As the baby boomer generation—aged 45 to 65—they are the largest and most powerful political constituency in Britain. And they are using their electoral clout to prevent their children from having opportunities equal to their own. In crude terms, they are keeping too much wealth. By the time we inherit, it will be too late.

This is most obvious in housing. Baby boomers complain their children cannot afford a house—while preventing the development that would make it possible. Despite population growth, they have consistently failed to increase the supply of available land. London is expected to have 700,000 additional households in the next 20 years—the equivalent of 35,000 households per year. Yet in the last year fewer than 25,000 dwellings were created in the capital. This has been true for decades: the supply of housing has not been allowed to keep pace with demand. Unsurprisingly, house prices have skyrocketed—my parents’ house in London has quadrupled in real terms during my lifetime of 26 years—and the wealth gap between those who bought in that period and those who did not increases every year.

For baby boomers high house prices are a guarantee for the future: a significant part of their pension and a vital asset to pass on when they die. That is why cutting inheritance tax is so popular. It is also why people passionately resist new housing in their area.

For us, it is a catastrophe. The population increases, new houses are not built and the price of property continues to rise. The average person in my age bracket—between 22 and 29—cannot pay their rent and save for a deposit. It would cost on average 10 per cent more than their net monthly income. That is a key reason why a quarter of men between 25 and 29 still live at home.We are left in a situation where we cannot afford anything for decades, which in turn delays when we can have children or leave home. We may inherit—but that is merely concentrating wealth in the hands of families that are already doing well.

The answer isn’t complicated: build more. Yet no one seems willing to do it.

Then there are pensions. Baby boomers are retiring too young and do not want to work longer. If they don’t, we will not have any retirement at all—we’ll be too busy paying off the debts from theirs. Here, at least, the government is trying to move in the right direction, recognising that 40 year olds with a life expectancy of 80 cannot retire at 60 or 65. [See Paul Johnson’s article on pension reform.] Yet the opposition from unions and charities which represent the baby boomer generation—but not mine—makes the government’s success uncertain, and prevents it from taking the bolder steps needed.

Finally there is debt—particularly from higher education. Degrees are more essential for my generation than any preceding one. That is not anyone’s fault—it is a trend matched in every other major developed country. I support the concept of students paying towards university; it is manifestly unfair for those who did not benefit from a degree to subsidise those who do. But when combined with our housing policy, the result is frightening. At the point when, in previous decades, we would be saving for a mortgage, we are still paying our debts.

If a student completes a three-year degree costing £9,000 a year with a £3,500 annual maintenance loan, he or she will graduate with £37,500 in debt. This is half of a down payment on a mortgage for an average first-time buyer in greater London. There is, therefore, an enormous opportunity cost to university fees—and they are further exacerbating the inequality between the baby boomers and us.

None of these arguments is new. David Willetts’s excellent book The Pinch discussed the conflicts of the generations in 2010. Yet—except for some move from the government on pensions—no political party has really addressed them. This is unsurprising: most politicians are baby boomers. That does not make it forgivable.

Of course, it is not all bad. We have grown up in a time of peace, prosperity, and extraordinary technological change. As an educated woman in a developed country, my opportunities are greater than they have ever been. We have reasons to be optimistic about the future. But if the baby boomers are unkind to us—and so far, they have been—they cannot expect us to be kind to them.

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