Housing Tenure in Britain: Modelling the Change in the Route to Owner Occupation

Contrary to the trend in the 1980s when individuals began to purchase their own homes at an ever earlier age, Britain in the 1990s experienced a sharp fall in household formation rates among the young and in home ownership rates among the 20-44 age group. Part of this decline may be explained by the economic recession and part of it by the change in perceptions about the riskiness of housing as an investment. However, the continuation of relatively lower household formation and home ownership rates among the young after economic recovery seems to support another proposition- a fundamental change in their behaviour in the route adopted toward purchasing a home. We argue that this change is primarily brought about by structural change in the labour market and socio-demographic trends. Relative to older age groups, younger cohorts are experiencing lower earnings growth and greater employment instability. These effects are further compounded by their desire to delay marriage and remain single or to cohabit for longer periods, as this not only reduces the size of their potential (joint) incomes but also makes them vulnerable to sudden changes in household composition and/or in their fortunes in the labour market. In addition, the skills upgrading in the labour market implies that if the young want to secure higher permanent incomes, they have to be more mobile across jobs and locations than in the past. Owner occupation has therefore become less affordable, more risky, and less suitable as a housing tenure for the young at the early stages of their life-cycle.