Buying a home in London in your twenties is difficult, but not impossible | Institute for Fiscal Studies

Son number two is 24 years old. He has just had an offer accepted on a house in London. Yes, that’s right. 24. Buying a house. In London. It’s a small house in need of work and not in one of the capital’s most salubrious suburbs. But still. And no, this is not yet another piece on the Bank of Mum and Dad. Now, this is not quite the extraordinary thing it might have been a decade or so ago.

Homeownership rates for younger people fell sharply in the 2000s, but have recovered from their low point around 2015. Real house prices are high, of course, but they are well down on their March 2022 peak; near enough exactly the moment your genius columnist bought his property.

Real, inflation-adjusted, house prices are still well down on where they were all the way back in 2007. The real reason for writing about my boy, though — beyond paternal pride — is that his experience illustrates three other rather important points about how our economy is working, and for whom.

First, obviously, he is earning quite well. He’s already a higher rate taxpayer. Not that that’s such a big deal nowadays; about one in five taxpayers are now in that position. Both his gross earnings and, especially, his take-home pay are well above those of most of the other 24-year-olds at his firm. That’s because he started work there at 18 as an apprentice. He has six years’ experience to their two or three. He doesn’t have a degree, but nor is he paying 9 per cent of his salary over £25,000 in student loan repayments. That’s worth a lot. Graduates nowadays face effective marginal tax rates of 37 per cent if they earn between around £25,000 and £50,000, 51 per cent between £50,000 and £100,000, and an eye-watering 71 per cent if they are lucky enough to see their income climb above £100,000.

The return he is earning on his higher level apprenticeship — that’s a qualification ranked as one notch above A-level, a couple below degree level — is high. That is exactly in line with what we know about the economic value of these vocational apprenticeships in technical subjects; his was in software engineering. Those who do them tend to do well.

Sadly, very few young people are enrolled on such courses. According to the Department for Education, between August last year and April this year a grand total of 6,760 under 19-year-olds started a higher level apprenticeship, roughly the same number as were accepted into an undergraduate course at Oxford and Cambridge, and a minuscule fraction of the total numbers going to university.

That shortage of opportunity is holding back both young people and the economy. Second, he had the great advantage of being born and brought up in London. That meant he could access the capital’s high paying, high quality jobs while, for a period, living at home. Unlike his peers from elsewhere he wasn’t immediately hit with huge rent payments, and hence could save even when on a modest salary. He has been renting a room in a flat for the last couple of years, at an eye-watering £1,000 a month. That’s pretty standard in centralish, niceish bits of London for pretty basic accommodation.

This cost has two consequences. First, it means that young people from elsewhere in the country who don’t have parents who can support them, find moving to London difficult and hence struggle to access the well-paid jobs available there. That is especially true of non-graduates but also notably true of graduates from less well-off backgrounds. They are shut out of the country’s most dynamic, highest paying, most productive labour market. Secondly, those who do move to the capital and pay these rents struggle to save enough to put together a deposit, particularly not enough of a deposit to access the loans of six times salary available to those with more cash.

The shortage of housing available for rent, as well as for buying, in London and the southeast serves to lock in the advantages of those growing up in the metropolis — the sons and daughters of the metropolitan elite, perhaps — while excluding others and stymieing economic growth.

The third thing that made it possible for him to have a big enough deposit was the pandemic. Remember that? Knocking on for two years of not being able to spend anything, while working, bumped up his bank account very nicely indeed. Had he been at university it would have been all bad news. But there was an economic silver lining for him, and many like him.

Estimates from the Office for National Statistics published this summer suggest that households might have accumulated in excess of £300 billion of “excess” savings in the period since spring 2020. One of the things that has distinguished the UK from the United States, for example, is that we have not run down those excess savings. That is rather un-British. You can usually rely on us to support the economy by spending like there is no tomorrow.

Rather to the surprise of most forecasters, even after the enormous forced saving of the Covid years, savings rates have remained relatively high compared with their pre-pandemic levels. That, no doubt, is the effect of the economic uncertainty, cost of living crisis and consequent lack of consumer confidence.

There are some obvious lessons, and some hope, in all this. Lesson number one: expand those high level, high value apprenticeships. University isn’t everything. Lesson two: surprise, surprise, more houses in and around London please, and please, please, stop making the rental sector less and less attractive. It is crucial for geographic mobility and for allowing young people to access opportunities irrespective of where they are from. And the hope? One day maybe some of that accumulated saving will start to get spent, and give the economy a little forward nudge.

This article was first published by the Times, and is reproduced here with kind permission.