Two Million Working Adults in the UK Live with Parents - What is the Investor's Opportunity?

The numbers are unfavourable to both buyers and renters, particularly those under 40. So employers, investors and homebuilders are looking outside of London.

A significant social trend has been happening in the UK that has gone quietly unnoticed. Almost two million working adults, ages 20 through 34, still live with their parents. That’s 48 per cent of people that age. This delays the start of new households, it affects consumer spending, it often leads to family strife – and it may be up to investors and developers to fix it.

The obvious problem is that housing is too expensive, with prices rising annual by double digits in many cities even while wages remain relatively flat. Young, working adults have to save longer to get deposits on homes, which continue to be priced beyond their grasp. A clear solution is to build more and perhaps decentralise where workplaces exist, which can mean building in places other than London and its fringes. UK land fund managers, who help convert unused properties into residential and commercial districts, understand well how this pent-up demand represents a strong emerging market for homes and flats in the decades to come.

In Japan, this has been happening for more than two decades already. Faced with a stalled economy, an entire generation of unmarried adult children have opted instead to remain living with their parents and spending their earnings on consumer goods (the common term is “parasite singles”). In southern European cultures, it is historically common to remain at home until and even after marriage. But in the UK, the US and many other countries, launching into adulthood has meant finding their own place to live as soon as possible. And that is not currently happening for about half of Britain’s young people.

With data accumulated by Nationwide, the UK mortgage company, it’s clear why this is happening. Prices have climbed back to near or above 2007 levels, the historic peak (higher in London, Bristol and Cambridge, lower elsewhere). Mortgage payments themselves have become more affordable since the 2009 interest rate cuts (now consuming, on average across all age groups, 16 per cent of homeowners’ incomes). But deposits required of first time buyers are now around 20-25 per cent of the purchase price, which is rising rapidly with the prices of homes. With fewer people buying, more are renting – driving up the rental rates as well. This is a primary reason why those young people continue to struggle with finding an affordable place to live.

The problem is somewhat regional, of course. Homes in London for first-time buyers are on average 7.5 times the average earnings of workers there. But across the country, that ratio is lower at 4.3 times earnings. Still even the lower figure is high by historical standards.

So what is the role of the developer, homebuilders and investors? Simply, to increase supply that will create downward pressure on prices for both buying and renting. But given the regional nature of high housing costs, something new is happening: younger people are leaving London. According to the Office for National Statistics, thirtysomethings are moving to places such as Birmingham, Bristol, Manchester, Nottingham and Oxford. These are people who are on the move, not interested in becoming “parasite singles.”

Given that, investors need to start thinking outside of the London box. This is why employers and alternative investment funds are increasingly looking west, north and southeast of the capital city for land where homes can be built and be affordable at market rates to buyers. This also has the effect of diminishing wage pressures on employers.

UK land investors should consider the opportunities of pent-up housing needs, but also where any type of real estate investment fits into their own wealth building strategies. An independent financial advisor can guide individuals on questions such as these.