The long-term problem for "generation rent"

We need to stop relying on home-ownership as the only way to build wealth if we're to have an adequa

It's been a bad few weeks for social care. First the faltering of Southern Cross, then Panorama's revelations about abuse at residential homes. Now, the Equalities and Human Rights Commission reveals shocking levels of neglect among older people cared for at home.

Coming on top of a set of daunting demographic trends, it all means Andrew Dilnot's review of social care funding - due out in early July - could not be more timely. As things stand, Dilnot's proposals don't offer the sustainable solution they claim to. That's because they're based on an assumption of home ownership that's becoming obsolete for many ordinary families.

One of Dilnot's central recommendations is expected to be that individuals should pay for their own social care up to a lifetime cap of around £50,000. After that, the government will step in to insure people against catastrophic costs. Analysis by researchers at the University of Kent estimates average lifetime costs for residential and community-based social care at around £18,650 for men and £41,350 for women. In other words, in most cases, government won't be called on at all. As in the current social care system, under Dilnot, most people will pay for the care they need themselves.

Because few people have ready access to £50,000 in savings, Dilnot's recommendation is predicated on people releasing equity from their homes. On the upside, this means people can stay in their own home into old age while making use of their house as an asset and relieving the government of some expense. As today's asset-rich baby boomer generation nears retirement, that all seems sensible. The question is: how many of the old in future generations will have a home to draw on?

Far fewer than today. One million new households have become renters since 2005. That brings the total number of households in the private rented sector to nearly 3.5m. Although most older people on low-to-middle incomes still their own home, the percentage under 35 who are renting has tripled since 1998.

No-one can predict what will happen to house prices in the long term, but trends like these make it is possible that we are at the beginning of a major shift away from home ownership. In line with other European economies, long-term renting could become far more common. That poses a major problem for a care policy premised on equity-release from a home.

Housing is only one type of asset that people could use to pay for their social care. Other assets, from pensions to savings, could do the same job. Today, few ordinary families have much in the way of these non-physical assets. In 2008, just over a quarter of people on low-to-middle incomes reported having a pension. Less than half made regular monthly savings. For those who did, the average amount saved was less than £200 a month.

As a proud, property-owning democracy, we've come to rely on home-ownership as the way to build wealth. We've backed that up with a tax system that treats housing more favourably than other kinds of assets. But if current trends in the housing market continue, the gap between home owners and long-term renters will affect far more than the housing market. If something isn't done to boost other forms of asset-ownership, it could also bring down the social care financing system that we're about to put in place.

 

Vidhya Alakeson is Director of Research at the Resolution Foundation

Vidhya Alakeson is deputy chief executive of the Resolution Foundation

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Theresa May is paying the price for mismanaging Boris Johnson

The Foreign Secretary's bruised ego may end up destroying Theresa May. 

And to think that Theresa May scheduled her big speech for this Friday to make sure that Conservative party conference wouldn’t be dominated by the matter of Brexit. Now, thanks to Boris Johnson, it won’t just be her conference, but Labour’s, which is overshadowed by Brexit in general and Tory in-fighting in particular. (One imagines that the Labour leadership will find a way to cope somehow.)

May is paying the price for mismanaging Johnson during her period of political hegemony after she became leader. After he was betrayed by Michael Gove and lacking any particular faction in the parliamentary party, she brought him back from the brink of political death by making him Foreign Secretary, but also used her strength and his weakness to shrink his empire.

The Foreign Office had its responsibility for negotiating Brexit hived off to the newly-created Department for Exiting the European Union (Dexeu) and for navigating post-Brexit trade deals to the Department of International Trade. Johnson was given control of one of the great offices of state, but with no responsibility at all for the greatest foreign policy challenge since the Second World War.

Adding to his discomfort, the new Foreign Secretary was regularly the subject of jokes from the Prime Minister and cabinet colleagues. May likened him to a dog that had to be put down. Philip Hammond quipped about him during his joke-fuelled 2017 Budget. All of which gave Johnson’s allies the impression that Johnson-hunting was a licensed sport as far as Downing Street was concerned. He was then shut out of the election campaign and has continued to be a marginalised figure even as the disappointing election result forced May to involve the wider cabinet in policymaking.

His sense of exclusion from the discussions around May’s Florence speech only added to his sense of isolation. May forgot that if you aren’t going to kill, don’t wound: now, thanks to her lost majority, she can’t afford to put any of the Brexiteers out in the cold, and Johnson is once again where he wants to be: centre-stage. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.