What happens when generation rent ages?

We are all growing older. We are growing older as individuals (people always have) and we are growing older as a society. What is different about the current trend towards ageing is that it is becoming a societal as well as an individual feature. As a societal feature, it contains all sorts of problems that we haven't encountered before and for which the welfare state is ill prepared. The welfare state is poorly prepared on two counts - for the volume of numbers of aged people in the near future and for the novel situations that they will bring with them.

Let's deal with the novel situations first because they are likely to be more pressing. In the UK, the number of private rental tenants aged between 45 and 64 has doubled in the past two decades. In the next ten years or so, many in this cohort will reach state retirement age. Their personal financial circumstances when they reach retirement age, are likely to be of concern. In its construction, the welfare state rested upon two assumptions. First, that elderly renters would occupy social housing rather than the private rental market. Second, that the private rental market would be used mainly by younger renters prior to them getting on to the housing ladder. These two assumptions can now be called into question.

To begin with, there has been a dramatic decline in the social housing rental market since 1980. Starting with the sale of the council housing stock and exacerbated by the reduction in social housing new builds, the stock of available social housing has fallen considerably in recent decades. From about 5 million units in 1980, the social housing stock has fallen to between 1.5 and 2 million units today. In the same period, the population of the UK has risen from about 56 million in 1980 to about 65 million today. There are far fewer units of social housing to accommodate many more people. Just as the population started the ageing process, the number of units of social housing has fallen, forcing larger numbers of elderly people into the private rented sector.

In the private rented sector, this ageing population of private renters are competing with increasing numbers of younger renters. In the two decades from 2000 to 2020, the number of 25 to 34 year olds privately renting has increased by two and a half times. The average age of the first time buyer in the UK has risen from 26 in 1980 to 31 today. This is all having an impact on the private rented sector. Housing is scarce and expensive. This trend is one seen across Europe and North America, not just the UK.

If these core assumptions of the welfare state no longer hold, then they have a consequential impact on other aspects of the welfare state. The way in which the actuarial profession structure their forecasts of how much is needed in retirement assume a pathway where a person buys a house on mortgage, which has been repaid by retirement. The core assumption is that the retiree has zero housing costs. On this basis, Royal London calculated in 2018 that a retiree would need a pension pot of £260,000 to maintain a median salary. If rental costs are added to the retiree's needs, then a pension pot of £445,000 would be needed. Britons are currently nowhere near the smaller figure, let alone the larger one.

This suggests a future in which the older private renters could clock up significant rent arrears, face eviction from housing, and could fall back on the state for assistance. The social infrastructure, outside of the adult care sector, just isn't there. The situation is worsened by the prospect of the other feature of societal ageing - the sheer volume of numbers of old people needing assistance at the same time. Not only will the state face an intractable problem surrounding the housing of the elderly it will also face the question of placating larger numbers of articulate and older citizens who are ready to exercise their vote.

All of this suggests a future in which there will be a much larger role for the state than we are accustomed to. Greater levels of financial assistance will be needed for housing, healthcare and adult social care. Not only will the levels of assistance be greater, but also the numbers requiring assistance will be much higher too. How this will all be paid for is anyone's guess. It does suggest a fundamental restructuring of the welfare state is likely this decade. So, what happens when generation rent ages? Public spending goes through the roof! (Pun intended).

Stephen Aguilar-Millan

© The European Futures Observatory 2021