Legal & General : Is a lifetime of paying rent leading to greater social inequality?

7 Oct 2019

On current trends, up to half of young people will still be renting into their 40s. A third of people paying rent now are even very likely to be renting when they claim their pensions. The age of people who rent is increasing rapidly. The overall UK rented sector increased in size by 81% from 2.6 million households to 4.7 million between 2007 and 2017, with nearly 40% of all tenants now in the 35 to 54 age group.

The reasons for the increase in renting are clear. The cost of a deposit for a new home has ballooned, as prices have risen dramatically. Research for the Intergenerational Commission has shown that the time for the average young family to save for a typical first time buyer deposit has risen from just three years in the 1990s to 19 years today.

In addition, Our Bank of Mum and Dad report (BoMaD report), shows that family and friends need to help house purchasers buy increasingly larger properties. Families as well as single people are now desperate to move out of rented property. The report shows that three-bedroom homes formed 40% of the homes that benefitted from the Bank of Mum and Dad. The report also showed that 14% of Britain's over-55s expect assistance from BoMaD for a future house purchase.

Even more worrying is how renters will afford to live when they finally retire. The average rent of a 2-bedroom home in London has now reached around £1,750 a month. However, even with the recently announced pension increases, a monthly single person's state pension will only be £730 a month. Shelter's blog on grey renting highlighted the very real risk of increasing homelessness. Shelter said: 'this shift in the way older people are housed could see increasing numbers of pensioners paying unaffordable levels of rent, forced to move against their will or made homeless.'

A further issue of concern is that private tenants often rent their home on an assured shorthold tenancy. This means that after an initial contract period of typically six months to two years, many people are put on a lease with a one- month to three-month' notice period. Landlords can give tenants just two months' notice to leave, without giving any reason why.

Legal & General's CEO Nigel Wilson said: 'The Bank of Mum and Dad is a symptom of Britain's broken housing market and goes far beyond milennials relying on their parents, as more older borrowers look to family and friends for financial support.' Solutions to the issue are complex and as well as increasing the supply of homes to buy through a programme of housebuilding we also want to make life better for those who will inevitably continue to rent.

In the autumn 2017 budget, the government announced an ambition to deliver 300,000 new homes a year. Yet in the 12 months to September 2018, there were only 166,000 new housing starts. We believe that more homes are needed across all housing sectors. We need more homes to buy and more homes to rent. We want to see more affordable homes built and more social housing made available.

We showed our commitment to providing affordable, better-quality rental property by entering the build-to-rent sector in 2016, and now have fifteen schemes in operation or development across the UK, delivering 5,000 homes for renters in major cities such as Salford, Manchester, Bristol, Birmingham, Bath, Brighton, Leeds, London and Glasgow.

Our ambition is also to deliver 3,000 affordable homes annually within the next four years. We recently secured four affordable schemes, comprising 278 new homes in Croydon, Cornwall, Dunstable and Shrivenham, Oxfordshire, with a further pipeline of over 40 sites across the UK.

In Croydon, there are over 2,000 families requiring temporary accommodation. Our £44.6 million investment is delivering a mixture of houses and flats, initially leased to Croydon Council on a 40-year term, after which time they will belong to the council. Rents will be set at Local Housing Allowance ('LHA') levels. The homes will provide much-needed stability for local families and residents, many of whom have been living in emergency accommodation.

Unlike some private landlords, we take the long-term view in our relationship with people who rent. Our rental properties in Salford have been able to offer significantly reduced living costs because of economies of scale, which a private landlord just wouldn't be able to do. We offer longer and more flexible tenancies to create greater occupational security, with tenancy options for up to five years. Residents can also benefit from favourable all-in costs, through significantly reduced energy costs, no letting fees, and free services such as Wi-Fi.

We are also continuing to build modern, environmentally sustainable accommodation for all sectors of the housing market. Our specialist housing company, CALA are dedicated to building high-quality housing in vibrant and sustainable communities. Legal & General Homes are the first housebuilder to embed the principle of social value into their homebuilding. We also are taking steps to expand our newly created business to build modular homes at our modern factory in Yorkshire. For those people in later life, we have a number of retirement villages which can give retired people greater security and the opportunity to continue live in a vibrant community.

Renting should not be seen as something which splits society into 'haves' and 'have-nots'. Institutional investors such as Legal & General can improve the quality of rented homes and give tenants greater long-term security. At the same time we also want people to have a greater opportunity either to own their own homes, which can create greater financial security in later life, or to have access to better retirement accommodation.