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1.8 million 25-34 year-olds locked out of the housing market since 2001

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Rent BoardsA new report from the independent Social Market Foundation think tank has found that almost two million more young people have been locked out of the housing market since 2001 – and argues that property crowdfunding offers a way to help more people onto the housing ladder, while also providing much needed investment in housebuilding.

The new study, Locked Out: How property crowdfunding could help the next generation of homeowners, finds that if homeownership rates among 25 to 34 year olds in 2016 were the same as in 2001, an additional 1.8 million young people in this age bracket would be homeowners in England. These young people are locked out of the housing market due to high house prices, stricter lending criteria and the difficulty of saving for a deposit in a low-interest environment, while house prices soar.

The report points to insufficient housing supply as the key underlying factor, showing that the UK will face a shortfall of almost 1.3 million homes by 2026, based on current unmet demand and inadequate supply growth, which will further drive up property prices.

The report also considers how the housing market may evolve over the decade ahead, warning that supply may continue to fall short while demand continues to rise, causing homes to become ever more unaffordable.

The report shows how property crowdfunding can help address these problems. Property crowdfunding allows would-be investors to a share of a property through online platforms. Although in its early stages in this country, the dramatic growth of alternative finance in the UK and the huge expansion of real estate crowdfunding in the USA – which has hit $1bn – suggest potential for significant growth in the years ahead.

The report argues that property crowdfunding could address the affordability crisis by:

  • Making saving for a deposit easier for aspiring homeowners in an environment where house prices continue to increase. Those saving for a deposit to buy a home would have a way to earn returns that keep up with house price growth. For instance, £100 invested in property at the start of 1996 would by the start of 2015 be worth over £600, while the same initial sum in cash would have grown to only £226 in an instant access savings account.

  • Widening participation in property ownership by lowering the barriers to entry and allowing a greater number of people to share in property price growth.

  • Boosting the supply of new homes by providing equity funding to small and medium-sized housebuilders.

    • The report makes a number of policy recommendations to enable the property crowdfunding market to develop and help tackle the housing crisis:

    • The Government should remove the anomaly whereby property crowdfunding is excluded from the new Innovative Finance ISA. Inclusion within the familiar and trusted ISA wrapper would help encourage consumers to explore the potential of property crowdfunding.

    • The Government should consider allowing savers to use property crowdfunding when saving in a ‘Help to Buy ISA’, so would-be first time buyers can build a deposit in a product that tracks house prices.

    • The Government should introduce a new ‘Help To Build’ savings product to incentivise investments in new housing supply. This would encourage people to invest in property crowdfunding products that provide equity capital to SME developers when they build homes for rent.

    • The Government should consider the role property crowdfunding could have within broader shared ownership policy. Property crowdfunding has the potential to give both social tenants and private renters the opportunity to buy an equity stake in the home they live in.

      • The author of the report, SMF economist Katie Evans said: “Getting onto the housing ladder is becoming harder and harder for young people. Our failure to build enough homes means this problem threatens to stretch into the future.

      “Property crowdfunding could be the means to tackle both demand and supply, by helping more young people to become homeowners, whilst directing additional investment to small and medium-sized house builders.”

      Founder and CEO of Property Partner, Daniel Gandesha, added: “The solution to the UK’s housing crisis must be innovation. There’s no time to waste. Young people need affordable access to the market. Housebuilding needs to double to meet demand. It’s time to put options like property crowdfunding on the table as part of the answer.”

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