«convert all prices to 2025 pounds, adjusting for inflation. All data is from the ONS(4). At the age of 30, Jess takes home £26,300 after taxes compared to Linda’s £14,200. That’s roughly £35k to £19k gross[5] - a huge difference. Not only does Jess earn much more, many goods are similar or cheaper in price. [...]
(4) Largely retail price index, rental index, housing index. Ultimately some of these figures will be off and you can never make a perfect comparison, but I think the overall point and orders of magnitude far outweigh any minor inaccuracies here and there.»
Our blogger here falls victim like many to a couple of biases eagerly pushed by some vested interests:
* Using the ONS inflation index for pay significantly understates the rise in cost of living (even before trains, education, housing, dentist, etc. costs) for someone like Linda or Jess at 30: the official indices are cleverly constructed to be "general price level" indices rather than "cost of living for the same working class lifestyle" (how many TVs and iPhones do working class people buy every year?) and to minimize the growth of such indices and even small differences in the index compound a lot over 40 years.
* The take home pay comparison is only about base pay but Linda got on top of that much larger pension contributions than Jess, and for a much more secure final pension than for a defined contribution one, and for a much more secure job with much better social insurance. Jess Jess needs to save an extra £7,000-£9,000 to get equivalent value.
«Jess had to go to university and rack up five figures of debt in order to secure the same entry-level office job that Linda or her husband walked into at 18 with a couple of A-levels.»
Implied in this is also another big deal: Linda had an extra 3-4 years of earnings over Jess it is not just the raw cost of attending university it is also years of missed income and missed pension contributions.
By effectively raising the entry qualifications for white-collar (and many blue-collar) working class jobs from A-levels to a degree the thatcherite governments since Thatcher and Blair have not only taken a large number of young people off the unemployment statistics but also they have made them borrow to fund a significant number of new jobs in universities. A win-win... :-)
So it is not just huge booms in housing costs and education costs, but also pension costs have become tremendously higher for people like Jess compared to people like Linda.
That pensions have become so much more expensive and the cost has been shifted nearly entirely from employer contributions to employee contributions is currently kept fairly quiet because not many people are retiring yet on post-Thatcher/Blair pensions, but probably while many people like Linda retired on 60-80% of their lifetime average salary, many people like Jess will probably retire on 30-40% if they are quite lucky and many with rather less, probably a significant number will only have the basic state pension to retire on.
As in the past there will be a large fraction of working-class retirees living in dingy basement or attic bedsits, perhaps 2-4 to a room, and eating everyday only water and bread, like currently in poorer countries in continental Europe or in parts of the north and other "pushed behind" areas.
The core argument here is reasonable but unfortunately the clickbait intro isn’t and borders on misogynistic. The core WASPI argument is about the unfairness of the 2011 hiking of the state pension age for a specific cohort of women who were due to retire not long after that and therefore didnt have the time or earning power (or, for some, the good health) to be able to save to compensate. Similarly, the argument about age 60 is not about whether women should be able to retire at the age set when they started work but rather about the maladministration in communicating the change meaning again that they didn’t have enough time to plan. Both issues are 100% different from intergenerational issues around housing costs and it is unhelpful to conflate them or indeed to claim that one sort of unfairness (affecting both sexes, by the way) compensates for another (affecting only women in a specific age range).
This is an excellent article. One thing I would be interested in is: Are these sums (broadly) based on SE England incomes/ prices etc? Would the gap between Linda and Jess be roughly the same in N Ireland) NE England?
I realise you can't cover everything. The article itself is great - will try to show it to my parents ( 83, 80) at the next opportunity 🙂.
One thing to add is that, of course not for everyone, but many Boomers also have gold-plated defined benefit pensions and will be able to retire rather comfortably with a guaranteed income and zero housing costs. My grandfather managed to retire at age 55 from a middle management job at the gas board precisely because of this combo of cheap housing and a good pension. The closer you get to present day, the more each of those deteriorates.
Good piece -- I will keep this as a good illustration of how the financial situation for young people can get better and worse at the same time, along different dimensions.
Would be interested to see the same exercise done in the US. My intuition is that our housing crunch is real but not as extreme as the UK's, such that millennials are have several "advantage" categories counteracted by higher housing prices, but don't wind up very far behind Boomers overall. But that's just an intuition and I should run actual numbers.
By the time Linda dies, though, Jess will be likely in her 50s, maybe older. Bit late....and it might be that much of the money will be spent on care costs.
Inheritance inequality is a huge divider within the UK. There are quite a lot of articles and papers about it, though it seems to have dropped from a peak of prominence in the last couple of years.
This long read in the Guardian seems to coincide with the publishing of several books about it, and then the start of the issue's drop into obscurity again.
Several people have rightly stressed the disastrous policy of council house sell - offs as a key factor in this situation. Another inflationary aspect is (ironically enough) probably the bank of mum and dad by virtue of their artificially high housing valuation. So in a way the boomers are part of an asset spiral by creating the demand for deliberately limited assets at "whatever price". Just like Help To Buy but at least not taxpayer money. The effect is identical though of course.
Great piece which totally sums up the broken state of our housing market. You haven't even mentioned the selling off of council houses which pushes more people into private renting, and makes that housing even more expensive. Aaaaasarrrrrgggghhhh!!!
Fantastic article and I think your point about how this generational wealth transfer has stunted the potential room for tax based funding of WASPI pensions (among other things) is the standout point. Right to buy proving itself to be the single biggest policy disaster in British post war history
Excellent article. As a Gen X I have benefited from the housing market, but am being shot by both sides as Linda is arguing for more cash from my taxes (to fund a pension that gets further away for me) while trying to help Jess get a home at the same time (who I also had to fund a lot through University, even with student loans, which boomers did not). The considerable costs of childcare now something you have missed out of the equation for Jess.
Banks in the 80 & even 90s would not lend more than 3x salary. They were not allowed to for much of the period, and after rules. were relaxed were very wary. Mortgage rates were higher but so was inflation which meant that while it was a struggle for a few years the burden dropped rapidly.
However, I think the thrust of your article is broadly right, Housing costs in the English-speaking World have exploded in a way they haven't elsewhere. Unwinding it without causing a banking crisis is going to be tricky and involves probably several decades of flat house prices given low inflation and growth. Countries like the UK do not have the luxury of a massive external surplus like Japan or China which could afford to crash things and limit the damage to financiers without materially affecting the lives of ordinary people other than making housing more affordable.
A decade of double-digit inflation would do it, but has other consequences
One other point, which isn't reflected in the numbers, is surety.
Linda has a guaranteed roof over her head, either through social housing or as a homeowner (although I acknowledge that many households did lose their homes in the early 90s recession). She (or her other half) likely has a DB pension (or guaranteed retirement income of some kind). The biggest uncertainties are covered.
Jess has to worry whether her private landlord will hand her a section 21 or not get the boiler fixed. She has an auto-enrollment pension - all the investment risk is hers and she has to work out how the hell she'll turn that into a retirement income, or whether it will ever be enough to retire.
I bought my first place in London in 1987. I earned just under £12,000. I had no savings and I had (quite a bit of) credit card debt. The flat cost £49,000. I got a 100% mortgage, very few questions asked. And, as someone else has mentioned, I had MIRAS, and I could have had a bigger loan if I had been less honest about my earnings. Even with honesty, I could have had a 105% loan. At that time lenders were offering 4x joint income loans. I'm not arguing that this is a good thing, it just drove up house prices, but it did make property more accessible.
I love this way of looking at things in your post.
No one should think of money as physical leaves on a tree. Then generations/interest groups can be pitted against one another, since there are only so many leaves to go around.
Money is more like the water in central heating system, only in the 1980s a bunch of scoundrels figured out how to pump it away for themselves, so there is less sloshing around to keep the rest of us warm. We could definitely pay the promised pensions without snatching avocado from the mouths of the young but someone might have to pay (more) tax on their offshore investment portfolio.
Good points but remember not every boomer got to buy a house back then. We bought a flat in 1990 and got repossessed in 1994 and ended up with an £81000 pound debt on paper as a result of the estate agent selling our flat at a knock down price to friends. We finally settled the (sold on) debt but couldn’t afford to buy again till 2006. I only own my flat now because I inherited some money from my father in India. My younger sister was told by DWP that her pension was fully paid up and on that basis she took early retirement and moved to France, only to be told a few years later that it wasn’t and she’d lose £180 a month. Is that fair? I have children paying outrageous rents and trying to make a living at a time when AI is taking work from them. I just hope I can leave them my flat and it doesn’t all go in care home fees whenI can no longer work. (I am 72 and still working because I can’t live on my state pension.) It’s all a disaster but I don’t think it’s the fault of either generation. It’s the fault of successive Neo-liberal governments that value money over everything and are busy transferring wealth from the poor to the rich.
Yes they lied to me as well. I still have the letter. And now the shortfall! I suspect the care home fees problem will be addressed if they eventually get that Bill passed into law ( see Canada and others).
«convert all prices to 2025 pounds, adjusting for inflation. All data is from the ONS(4). At the age of 30, Jess takes home £26,300 after taxes compared to Linda’s £14,200. That’s roughly £35k to £19k gross[5] - a huge difference. Not only does Jess earn much more, many goods are similar or cheaper in price. [...]
(4) Largely retail price index, rental index, housing index. Ultimately some of these figures will be off and you can never make a perfect comparison, but I think the overall point and orders of magnitude far outweigh any minor inaccuracies here and there.»
Our blogger here falls victim like many to a couple of biases eagerly pushed by some vested interests:
* Using the ONS inflation index for pay significantly understates the rise in cost of living (even before trains, education, housing, dentist, etc. costs) for someone like Linda or Jess at 30: the official indices are cleverly constructed to be "general price level" indices rather than "cost of living for the same working class lifestyle" (how many TVs and iPhones do working class people buy every year?) and to minimize the growth of such indices and even small differences in the index compound a lot over 40 years.
* The take home pay comparison is only about base pay but Linda got on top of that much larger pension contributions than Jess, and for a much more secure final pension than for a defined contribution one, and for a much more secure job with much better social insurance. Jess Jess needs to save an extra £7,000-£9,000 to get equivalent value.
«Jess had to go to university and rack up five figures of debt in order to secure the same entry-level office job that Linda or her husband walked into at 18 with a couple of A-levels.»
Implied in this is also another big deal: Linda had an extra 3-4 years of earnings over Jess it is not just the raw cost of attending university it is also years of missed income and missed pension contributions.
By effectively raising the entry qualifications for white-collar (and many blue-collar) working class jobs from A-levels to a degree the thatcherite governments since Thatcher and Blair have not only taken a large number of young people off the unemployment statistics but also they have made them borrow to fund a significant number of new jobs in universities. A win-win... :-)
So it is not just huge booms in housing costs and education costs, but also pension costs have become tremendously higher for people like Jess compared to people like Linda.
That pensions have become so much more expensive and the cost has been shifted nearly entirely from employer contributions to employee contributions is currently kept fairly quiet because not many people are retiring yet on post-Thatcher/Blair pensions, but probably while many people like Linda retired on 60-80% of their lifetime average salary, many people like Jess will probably retire on 30-40% if they are quite lucky and many with rather less, probably a significant number will only have the basic state pension to retire on.
As in the past there will be a large fraction of working-class retirees living in dingy basement or attic bedsits, perhaps 2-4 to a room, and eating everyday only water and bread, like currently in poorer countries in continental Europe or in parts of the north and other "pushed behind" areas.
The core argument here is reasonable but unfortunately the clickbait intro isn’t and borders on misogynistic. The core WASPI argument is about the unfairness of the 2011 hiking of the state pension age for a specific cohort of women who were due to retire not long after that and therefore didnt have the time or earning power (or, for some, the good health) to be able to save to compensate. Similarly, the argument about age 60 is not about whether women should be able to retire at the age set when they started work but rather about the maladministration in communicating the change meaning again that they didn’t have enough time to plan. Both issues are 100% different from intergenerational issues around housing costs and it is unhelpful to conflate them or indeed to claim that one sort of unfairness (affecting both sexes, by the way) compensates for another (affecting only women in a specific age range).
This is an excellent article. One thing I would be interested in is: Are these sums (broadly) based on SE England incomes/ prices etc? Would the gap between Linda and Jess be roughly the same in N Ireland) NE England?
I realise you can't cover everything. The article itself is great - will try to show it to my parents ( 83, 80) at the next opportunity 🙂.
One thing to add is that, of course not for everyone, but many Boomers also have gold-plated defined benefit pensions and will be able to retire rather comfortably with a guaranteed income and zero housing costs. My grandfather managed to retire at age 55 from a middle management job at the gas board precisely because of this combo of cheap housing and a good pension. The closer you get to present day, the more each of those deteriorates.
Good piece -- I will keep this as a good illustration of how the financial situation for young people can get better and worse at the same time, along different dimensions.
Would be interested to see the same exercise done in the US. My intuition is that our housing crunch is real but not as extreme as the UK's, such that millennials are have several "advantage" categories counteracted by higher housing prices, but don't wind up very far behind Boomers overall. But that's just an intuition and I should run actual numbers.
I think there is one thing missing here:
Unless Linda at old age sells her apartment and spends all that money on avocado, Jess will inherit Linda's flat when Linda dies.
By the time Linda dies, though, Jess will be likely in her 50s, maybe older. Bit late....and it might be that much of the money will be spent on care costs.
So, maybe Jess' daughter....
Exactly. And by that time Jess has already spent probably hundreds of thousands of extra pounds on mortgage interest etc.
Inheritance inequality is a huge divider within the UK. There are quite a lot of articles and papers about it, though it seems to have dropped from a peak of prominence in the last couple of years.
This long read in the Guardian seems to coincide with the publishing of several books about it, and then the start of the issue's drop into obscurity again.
https://www.theguardian.com/money/2022/dec/03/why-inheritance-is-the-dirty-secret-of-the-middle-classes-harder-to-talk-about-than-sex
Yes, but that is an inequality between individuals, not between generations. The Jesses will definitely inherit a lot more than the Lindas.
Too late (considering life expectancies esp among the middle classes) to make much difference to Jesses' life trajectories.
Unless Linda survives into old age but is so frail that she has to be moved to an Old People's Home. And/Or gets Dementia
Several people have rightly stressed the disastrous policy of council house sell - offs as a key factor in this situation. Another inflationary aspect is (ironically enough) probably the bank of mum and dad by virtue of their artificially high housing valuation. So in a way the boomers are part of an asset spiral by creating the demand for deliberately limited assets at "whatever price". Just like Help To Buy but at least not taxpayer money. The effect is identical though of course.
Brilliant.
Great piece which totally sums up the broken state of our housing market. You haven't even mentioned the selling off of council houses which pushes more people into private renting, and makes that housing even more expensive. Aaaaasarrrrrgggghhhh!!!
Fantastic article and I think your point about how this generational wealth transfer has stunted the potential room for tax based funding of WASPI pensions (among other things) is the standout point. Right to buy proving itself to be the single biggest policy disaster in British post war history
Excellent article. As a Gen X I have benefited from the housing market, but am being shot by both sides as Linda is arguing for more cash from my taxes (to fund a pension that gets further away for me) while trying to help Jess get a home at the same time (who I also had to fund a lot through University, even with student loans, which boomers did not). The considerable costs of childcare now something you have missed out of the equation for Jess.
Banks in the 80 & even 90s would not lend more than 3x salary. They were not allowed to for much of the period, and after rules. were relaxed were very wary. Mortgage rates were higher but so was inflation which meant that while it was a struggle for a few years the burden dropped rapidly.
However, I think the thrust of your article is broadly right, Housing costs in the English-speaking World have exploded in a way they haven't elsewhere. Unwinding it without causing a banking crisis is going to be tricky and involves probably several decades of flat house prices given low inflation and growth. Countries like the UK do not have the luxury of a massive external surplus like Japan or China which could afford to crash things and limit the damage to financiers without materially affecting the lives of ordinary people other than making housing more affordable.
A decade of double-digit inflation would do it, but has other consequences
One other point, which isn't reflected in the numbers, is surety.
Linda has a guaranteed roof over her head, either through social housing or as a homeowner (although I acknowledge that many households did lose their homes in the early 90s recession). She (or her other half) likely has a DB pension (or guaranteed retirement income of some kind). The biggest uncertainties are covered.
Jess has to worry whether her private landlord will hand her a section 21 or not get the boiler fixed. She has an auto-enrollment pension - all the investment risk is hers and she has to work out how the hell she'll turn that into a retirement income, or whether it will ever be enough to retire.
I bought my first place in London in 1987. I earned just under £12,000. I had no savings and I had (quite a bit of) credit card debt. The flat cost £49,000. I got a 100% mortgage, very few questions asked. And, as someone else has mentioned, I had MIRAS, and I could have had a bigger loan if I had been less honest about my earnings. Even with honesty, I could have had a 105% loan. At that time lenders were offering 4x joint income loans. I'm not arguing that this is a good thing, it just drove up house prices, but it did make property more accessible.
I love this way of looking at things in your post.
No one should think of money as physical leaves on a tree. Then generations/interest groups can be pitted against one another, since there are only so many leaves to go around.
Money is more like the water in central heating system, only in the 1980s a bunch of scoundrels figured out how to pump it away for themselves, so there is less sloshing around to keep the rest of us warm. We could definitely pay the promised pensions without snatching avocado from the mouths of the young but someone might have to pay (more) tax on their offshore investment portfolio.
Good points but remember not every boomer got to buy a house back then. We bought a flat in 1990 and got repossessed in 1994 and ended up with an £81000 pound debt on paper as a result of the estate agent selling our flat at a knock down price to friends. We finally settled the (sold on) debt but couldn’t afford to buy again till 2006. I only own my flat now because I inherited some money from my father in India. My younger sister was told by DWP that her pension was fully paid up and on that basis she took early retirement and moved to France, only to be told a few years later that it wasn’t and she’d lose £180 a month. Is that fair? I have children paying outrageous rents and trying to make a living at a time when AI is taking work from them. I just hope I can leave them my flat and it doesn’t all go in care home fees whenI can no longer work. (I am 72 and still working because I can’t live on my state pension.) It’s all a disaster but I don’t think it’s the fault of either generation. It’s the fault of successive Neo-liberal governments that value money over everything and are busy transferring wealth from the poor to the rich.
Yes they lied to me as well. I still have the letter. And now the shortfall! I suspect the care home fees problem will be addressed if they eventually get that Bill passed into law ( see Canada and others).