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

Getty
Show Hide image

How Theresa May laid a trap for herself on the immigration target

When Home Secretary, she insisted on keeping foreign students in the figures – causing a headache for herself today.

When Home Secretary, Theresa May insisted that foreign students should continue to be counted in the overall immigration figures. Some cabinet colleagues, including then Business Secretary Vince Cable and Chancellor George Osborne wanted to reverse this. It was economically illiterate. Current ministers, like the Foreign Secretary Boris Johnson, Chancellor Philip Hammond and Home Secretary Amber Rudd, also want foreign students exempted from the total.

David Cameron’s government aimed to cut immigration figures – including overseas students in that aim meant trying to limit one of the UK’s crucial financial resources. They are worth £25bn to the UK economy, and their fees make up 14 per cent of total university income. And the impact is not just financial – welcoming foreign students is diplomatically and culturally key to Britain’s reputation and its relationship with the rest of the world too. Even more important now Brexit is on its way.

But they stayed in the figures – a situation that, along with counterproductive visa restrictions also introduced by May’s old department, put a lot of foreign students off studying here. For example, there has been a 44 per cent decrease in the number of Indian students coming to Britain to study in the last five years.

Now May’s stubbornness on the migration figures appears to have caught up with her. The Times has revealed that the Prime Minister is ready to “soften her longstanding opposition to taking foreign students out of immigration totals”. It reports that she will offer to change the way the numbers are calculated.

Why the u-turn? No 10 says the concession is to ensure the Higher and Research Bill, key university legislation, can pass due to a Lords amendment urging the government not to count students as “long-term migrants” for “public policy purposes”.

But it will also be a factor in May’s manifesto pledge (and continuation of Cameron’s promise) to cut immigration to the “tens of thousands”. Until today, ministers had been unclear about whether this would be in the manifesto.

Now her u-turn on student figures is being seized upon by opposition parties as “massaging” the migration figures to meet her target. An accusation for which May only has herself, and her steadfast politicising of immigration, to blame.

Anoosh Chakelian is senior writer at the New Statesman.

0800 7318496