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Is My “Help to Buy” Really Helping Me to Buy?

by Olawumi Adedokun


I am 20 years old and recently had a heated discussion with an elderly mentor, Jesopi (65 years old), concerning the condition of the housing market and why my generation is more likely to rent rather than buy homes. My friend, like many, is under the impression that my generation is apathetic and reliant on handouts rather than saving to buy a house. In Germany, it is considered normal to rent throughout your life; yet there is a major push in the UK to buy houses. 


Why do people want to buy their own homes anyway? According to the national housing survey, the main reasons people buy homes is to provide a structure where their families feel safe, to allow more control over their living space and to increase generational wealth. Yet, according to a report by the Resolution Foundation, about a third of Britain’s millennial generation will never own their own home. Instead, many will be made to raise their families in unreliable rented accommodation for the duration of their lives.


Photo by Brandon Griggs on Unsplash

The main argument I put forward against Jesopi’s views is “how can millennials be expected to save for a house when renting takes up most of their paychecks?”. The problem millennials are facing is that house prices are rising far quicker than wages, and this is additionally aggravated by rents increasing above inflation. The reality is a lot of people cannot save for a deposit; although rental properties are supposedly more available, rent itself takes a large sum from every month’s pay. This makes it difficult to put additional money aside to buy a home. Disinterest in buying a home is to a lesser degree a generational mentality. The likelihood of property ownership has dwindled for most people born after the Gen X generation, especially for those that are unable to benefit from wealth passed on from their parents.


The UK government have introduced various schemes that are aimed at tackling the increased difficulty first-time buyers face in obtaining a home. For example, in the March 2013 budget, the government announced a “Help to Buy equity loan”, which was offered to first-time buyers as long as the home was a new-build. The scheme allows buyers to raise 5% of the home’s value as a deposit, and the government loans up to 20% to make up 25% of the worth of the home. Yet, all this has done is inflate property values and enable developers to profit; essentially putting first-time buyers at a disadvantage. Although the value of new-build homes tends to depreciate when they are sold, many new-build homes will charge a “new build premium”, which means buyers will pay more for a new property than if they bought an older property in the same area. In 2019, the average price of a new-build in the UK was at a markup of 29%. This is excellent for developers, who no longer need to invest in promoting their homes because the “Help to Buy” scheme ensures first-time buyers will always have to seek new builds. This puts first-time buyers at a disadvantage and consequently makes renting look even more appealing. 


One of the great classical economists, David Ricardo, presented a theory of rent in response to the corn wars in England (1839). At the time, landlords were raising the rent they were charging farmers for the use of their land and, as a result, farmers were forced to raise the price of corn. However, Ricardo argued that the price of corn was not high because rent was being paid, rather rent was high because the price of corn was high. The problem was that an increased demand in corn was driving up the cost of land. This can be seen in a simple supply and demand curve, where the supply of land is fixed, an increase in the price of the product market increases the price of the factor of production.

Graph from https://thismatter.com/economics/economic-rent.htm

In applying this to the increasing prices of rent, the increasing demand for housing is driving up the cost of renting. This acceleration of house prices is prompted by a supply imbalance in the housing market. 

As a result of the imbalance within the housing market, there are increasing numbers of young people in the UK that are sharing accommodation. According to the Department of Work & Pensions, over 25% of private single renters are still sharing accommodation by the age of 35. It is becoming a norm for young people to move out of their family homes and move in with friends or even strangers in order to tackle the increasing rent and housing prices. Whilst dealing with different personalities within a home can be taxing, it is still better to endure and save for your future. Just as Robert Bridges, a writer for The Wall Street Journal, argues, “Forget the house and save for retirement”. Research conducted by letting platform Bunk discovered it was cheaper to rent than own a home over a 10-year period. Effectively, you are better off renting than buying in this economy. Buying a house does provide you with a long-term asset but there are also other means of investing money and you may be better off using your savings to improve your way of life.


Fortunately, my argument had a positive end. Jesopi came to the realization that there is a lot that needs to be done to give young people access to the housing market. To allow young people to enter the housing market, the government must build more homes to increase the supply of housing. These homes need to be built in and around areas in which young people want to work and live. There needs to be further investment in transport links for people who want to live further away from cities and commute to work. However, until this is done, I will happily continue to rent and save for early retirement.


About the Author

Olawumi Adedokun is a graduate from the Univeristy of Kent where she obtained a Bachelor’s Degree in Philosophy. She has received a Jack Petchey Award and an Outstanding for All Award. She works in the retail finance industry and believes that despite the problems of the finance world, it is still possible to maintain her ethical and political principles. Her motto in life is “financial freedom is your only hope”, inspired by Jay Z.

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