10 reasons why your parents don’t love you (parts 3 – 6)

Much has happened since my last post. The Work and Pensions Committee called to scrap the triple lock on pensions. Perhaps they read my blog. There was Trump of course, but you probably had enough informed debate from your Facebook feed. Here we go, parts 3-6 of 10 reasons why your parents don’t love you.

3. Property ownership and 4. Rents

The cost of a deposit is rising, the proportion of first time buyers is falling, and an increasing proportion of houses are privately rented.

home-ownership

chart source: ONS

The young’s loss here is the older generation’s gain. Quantitative easing has kept house prices high and low interest rates have kept mortgage repayments low. People of modest incomes and talent have found themselves millionaires, ‘on paper’ they might add as if it doesn’t technically count. And if the young are not paying mortgages but rent (which by the way continues to outstrip earnings) who are they paying it too? That’s right, the baby boomers have found themselves a nice little earner. We are a nation of second home owners and Britain is slowly recreating a rentier society. It’s classic Picketty (of course I didn’t read it) with wealth accruing to capital. Crisis! What crisis? Our intensively farmed and bio-undiverse greenbelt remains green keeping Surrey in golf courses and the inner city unwashed at a safe distance. Nimbyism ensures this won’t change anytime soon. George (he used to be chancellor) promised cheaper house prices after a Brexit vote – a prospect that tempted at least one person I know to vote leave. We pray for the bubble to burst but with demand so outstripping supply it will likely keep inflating

The ‘boomerang’ generation (who left only to come back) as well as those who never left ensure some comeuppance on the older generation, as does the bank of mum and dad that is used to prop up deposits.

  1. Earnings

It’s hard to disentangle the viscous soup that is living standards and I could have lobbed earnings in with home ownership and rents. When I worked in industrial relations I found the focus on earnings peculiar. To me it felt like people felt a deep sense of injustice in the distribution of earnings whilst happily accepting the lay of the land as it relates to the distribution of wealth. It’s one thing to get paid for doing nothing (house price rise) but quite another to not get paid for doing something (depressed earnings). Arguments on the left would focus on the pay of the top and the differential between top and bottom (or top and middle). In this way earnings are fetishized, largely because they are so darn fungible, i.e. you can easily do things like make a ratio. We all have our number (I wonder if Paul’s is bigger than mine). OK hold that thought because I think I’ll do another blog on income v wealth (which by the way is held largely by, and has accrued most to in recent years – older generations – see Andy Haldane – whose recovery).

Nevertheless, earnings are important. I’ve written before about the earnings squeeze as it relates to everyone and to graduates. It’s a real bummer. Real terms pay rises have started to return largely because of low inflation (see graph below), however, these gains will likely be brexterminated, going forward. Turning again to the earnings squeeze – Since 2007 this has been most acute for the young – see graph. I didn’t really need to inflation index to make this point but I couldn’t bear to show the data without doing so (The whose recovery speech mentioned above has the same chart but with nominal pay – chart 18). Now we can see that only those 50-59 and 60+ have made real terms gains to pay.

earningsbyage

  1. Tuition fees

I’ll be brief because this is only so interesting.

Tuition fees went from £1,000 in 2005, to £3,000 in 2006 when I went to uni. I got off lightly as in 2012 they rose to £9,000. As is the case with most issues of intergenerational equality when I feel bad I consider the fate of the proceeding cohort. It’s tough sugar puff. Here is a point which I hesitate to call irony. The Minister for Higher Education at the time David Willetts is one of the most vocal advocates of intergenerational equality. Having written a book on the subject he now chairs the Resolution Foundation which has recently set up the Intergeneration Commission. I suspect his ability to curtail the headline fee was limited but given that it was not inflation indexed (until 2017-18) it did decrease each year somewhat. Considering the aforementioned squeeze to the earnings of young people and graduates and that paying these fees is conditional on earnings (in order that it is free at the point of use) many grads may never pay them back. Tuition fees also interact with housing (a viscous soup remember) as this will surely restrict a person’s ability to obtain a mortgage.

To recap

We’ve covered homes, rent, earnings, and tuition fees – all without too many graphs. We’re only at number 6! This week I came across an article arguing in favour of cutting the deficit as it appeals to generational equality. I’m not going to officially include this in my list of 10 but it’s an interesting point nonetheless.

I’m aware that this wasn’t very upbeat (I’m writing this on the day Trump was elected after all) which is why I sandwiched the reasons to be cheerful blog in the middle. I did warn that it would strike a balance between informed comment and unabridged diatribe. We still have some juicy ones to cover.

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