As Brits start returning to the pub, one of the big topics being discussed over frosty pints is bound to be the housing market. Homes have massively increased in price over the last few decades – much faster than the incomes. Getting on the property ladder seems an ever more remote prospect, regardless of how hard we work or the savings we amass.
My generation often spin this as a narrative of betrayal by our parents and grandparents: the old, fortunate enough to get in early on this 40-year-plus bull market, got ‘unearned’ windfalls while the young are increasingly priced out of the market. The home ownership rate at the age of 27 for those born in the 1970s was around 43%; 33% for those born just a few years later, and something like 25% for those born in the late-1980s. And it’s not much better once you’re out of your 20s and well into adulthood: in 2017 something like one-third of 35-44 year-olds rented their homes, compared to less than one-tenth two decades earlier. I can’t claim to know more than two or three people my age who are homeowners.
The pandemic has made this inter-generational battle even more fraught: the young, at next to no risk to themselves, were asked to re-arrange their lives and give up many of the pleasures they enjoy for the sake of their elders. If we wanted to set off a generational war, I can’t think of a better way to do it.
But stepping back from the barricades for a moment and dispassionately comparing the fortunes of the generations reveals a more complicated picture – and looking at house prices alone is far too simplistic.
When we plot disposable incomes for various generations at the same age, the Millennials (1981-2000) come off better than the much-maligned Boomers (1946-65) and Gen Xs (1966-80). In fact, adjusted for Consumer Price Index, a 25-year-old today has more money to spend on goods and services than those who came before them.
The same ONS stats that shows us stagnant median incomes also let us look back 10 years into the past for what the current cohort of 30-somethings earned when they were in their 20s. Far from stagnation, we see a very clear upward trend. On average this generation is earning 20-35% more in real terms than a decade ago – precisely what we’d expect for a workforce that acquires skills and experience, and becomes more valuable in the labour market.
Indeed, most of the “stagnant wage” thesis is a statistical illusion. Put simply, as people get older, they tend to move up the income ladder. That’s why many economists (Thomas Sowell more eloquently than most) have explained that even though median earnings remain flat or falling, it’s possible for every single individual to be better off. All it takes is a graduated pay scale and a large enough group of people entering at the low end of the earnings spectrum. In immigrant-heavy countries like the US and the UK this phenomenon is particularly pronounced.
Does it really say much about a country or a generation if their average earnings are the same as another’s, even though the former generation consists of very different people with very different skills, interests, or opportunities?
House prices blur the comparison, as indices of house prices grew much faster than wages at almost any time since the 1970s. House prices in London are about 80% higher today than in 2010 (50% for the UK as a whole). Still, even here things aren’t quite as grim for the younger generation as you might think: both the sticker price of houses and their value in relation to our incomes are indeed higher, but mortgage rates are about half of what they were in 2010. As we use someone else’s money to fund three-quarters or more of a house purchase, the cost of borrowing matters even more than the price of property.
Another important factor that is rarely mentioned in these debates is that the quality of the goods and services now available is vastly better than in previous generations. The story of human progress is how things get better. My smartphone packs more computing power than was used in the moon landing; opportunities in life – most certainly if you belong to any kind of minority – are greater today than in 1960 or 1980. My grandmother spoke only Swedish, flew abroad only a handful of times towards the end of her life, and never ventured outside of Europe. Before the age of 30 I had visited every continent, studied all over the world and learned three languages beyond my native tongue – and my experience is hardly dazzlingly atypical for someone of my age group.
My grandmother may have got on the housing ladder in 1963 for what would today seem like peanuts, but I have been afforded vastly more opportunities than her, simply by dint of being born in the 1990s instead of the 1920s. I could make the same comparison using my parents’ generation (born in the 1950s and 1960s) instead, with the result only different in degree. Yes, they have homes and higher net wealth than me, but I have time and the opportunities that the next 20-30 years affords.
The great fear is that my generation will be the first that was worse off than our parents. But every cohort of children grows up under different conditions and with different opportunities than their parents did. It’s not clear to me that the generations that endured the darkest days of the 20th century – the two World Wars, the Great Depression and the Cold War – were better off simply because houses were relatively cheap in the post-war period and the 1970s would inflate away their mortgages.
History unfolds in many different directions at the same time, offering opportunities and disadvantages to every generation. We do have a generational divide in many countries of the West, but I’m not convinced that it’s markedly worse than what previous generations experienced. Different? Certainly, but not necessarily worse.
Ultimately, the generational conflict derives from a narrative of decline, a belief that the improvements in human welfare and standards of livings were one-off quirks of an era that couldn’t last. Almost everything we know about human progress tells us otherwise.
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Joakim Book is a researcher and freelance writer on banking, monetary policy and financial history.
Columns are the author's own opinion and do not necessarily reflect the views of CapX.