Oct 192011
 

This is the 1st of 3 articles criticising The Intergenerational Foundation:
(This article)
Simple example of how The Intergenerational Foundation is wrong about housing
The politics of envy in intergenerational analysis


The Intergenerational Foundation

The Intergenerational Foundation is a relatively new charity intended to help younger generations at the expense of older generations. They don’t put it quite like that! They say “We believe that each generation should pay its own way, which is not happening at present. British policy-makers have given undue advantages to the older generation at the expense of younger and future generations”.

(In what way are we – I’m 64 – not paying our way? I live on my private pension and life savings, and don’t claim benefits. I am by a large amount a net contributor to central and local government revenues, and this will still be the case when I qualify for my state pension next year. Speaking as a childfree person, I don’t accept that it is reasonable for someone with children to compare their finances unfavourably with mine. Having children is a lifestyle choice known to leave you worse off for the rest of your life).

Hoarding of housing

The Intergenerational Foundation recently published a report ”Hoarding of Housing: The intergenerational crisis in the market” (PDF). While they have accumulated a lot of facts, the conclusions they draw from them don’t always follow logically and inevitably from the facts. In effect, they are a “single issue” group, running the risk of falling foul of the law of unintended consequences. Here are quotes from their “Executive Summary” that should raise questions:

The current housing crisis is not principally about Britain having enough housing but about the way it is shared between older and younger generations. …

House ownership is virtually unaffordable for younger people in the parts of Britain where there is work. As a result, private renting has increased by over 50% during the last 8 years.

Important questions are: “how many individual family units are there in total?”, and “how many individual dwellings are there in total?” Is it really the case that there are enough houses but they are spread unsuitably across generations, or are there in fact not enough houses? Unless it is thought that older people shouldn’t have houses at all, or should share them with one-another, the proposals of the report primarily amount to re-distributing the houses that exist among the family units that exist.

Consider:

  • High prices like this are often the result of “the law of supply and demand”. “Not enough houses” leads to a seller’s market, and higher prices. Build more suitable houses and the price will surely drop for existing equivalent houses! The report points out “The growth in new UK supply is extremely slow, at less than 1% a year. It has also been characterised by the building of small properties”. Well then! The population has grown much faster than that, partly through immigration, but especially because the birth rate is much higher than the death rate. (In fact, elsewhere,  the Intergenerational Foundation acknowledges the truth: “Britain is widely acknowledged to have a “housing crisis”: a situation in which too many young would-be buyers are chasing too few, overpriced properties, brought about by the lack of suitable new housing built in recent decades.”)
  • The report suggests that on average older people have more expensive houses. (That often goes along with “larger houses”). Indeed, this should be expected; the house you can afford after decades of work will typically be much more expensive than your first house. How will younger people be able to afford those larger and more expensive houses if the older people sell them? Especially if those younger people want those larger houses because they have families, and hence are likely to be financially constrained!
  • In fact, might it not be the case that older people, “buying down” with their savings (if they exist) plus the money from the sales of their expensive houses, will drive up the prices of smaller good quality houses? Perhaps we need less competition, not more, for cheaper houses?

In my article “The myth of a baby-boom-led housing crisis“, I pointed out “My first house, bought when I was 28, was vastly inferior to my current house and hardly worth a quarter of it”. It wasn’t just smaller; it was inferior in every significant respect – a much smaller poor quality house on a poor estate in a poor location. That was the way the housing ladder worked – you started with something that you wouldn’t consider for the long-term, and that you hope you will never have to return to. (It eventually had to house 3 people: me, my partner, and her daughter. I suspect few families of that size would consider such a house nowadays. Apart from anything else, it would be illegal to build one!)

Some policy proposals from the report raise questions, for example “a property value tax”, “abolition of council tax concessions for single occupation”.

  • What is the current basis of Council Tax other than (partly) a property value tax? It started with the old “rateable value”, after the much fairer “poll tax” was reversed.
  • And why should single people (like myself) pay an even more unfair share to the local councils? I already pay three-quarters of what a family consuming far more council services pays.

Politics of envy

Of course younger people want to have some of the benefits that older people have accumulated without having to wait decades to achieve them. I’m sure I did when I was that age! Needless to say, the reverse is also true. Many older people (not including me) wish they had had the education opportunities that younger people now have. Instead of only 5% of people going to university in 1965, (with most children leaving school at 15), perhaps over 40% can do so nowadays.

There are undoubtedly problems for many (not all) younger people. Some of them would by now have inherited their parents’ homes had their parents not lived longer than previous generations did. The population growth makes jobs harder to find, (and many of the old unpleasant labour-intensive jobs such as coal mining have long since disappeared), and so too are houses.

But what are the correct comparisons? Obviously it is wrong to compare a current 30 year old with a current 65 year old! The latter took an extra 35 years to reach their current state, living in a significantly different national and global environment. But it is also wrong to compare a current 65 year old with the prospects in 35 years time of a current 30 year old. The current 30 year old will then have a much greater life expectancy, and so factors such as the time to accumulate wealth, and retirement ages and the number of years after retirement, are all very different.

There is no evidence that the policy proposals in the report will actually achieve the effects the report wants. There is no evidence that diverting attention away from building new houses to redistributing existing houses won’t make things worse. The report appears to be driven by ideology based on “it’s the fault of older people so they must be forced to change”.

I’ve written about this so-called inter-generational unfairness before:

The myth of the UK baby-boom
The myth of a baby-boom-led housing crisis

And see this article about one of the people behind the Intergenerational Foundation:

The man who says pensioners should leave their ‘empty nest’ homes… and the £1.5m five-bedroom des res where his parents live alone

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