Young People Are Priced Out Of Their First Cars And Homes
Thanks to Diego da Silva for the image
Less and less young people are buying cars and houses. In the 20-30 age range, car and home ownership is falling rapidly. Owning your own property or car was a rite of passage for many twenty-somethings. By 30, most hope to settle down with their own home. However, this is no longer a common theme. Are young people actually priced out of these established investments? Or is it just down to a shift in personality and values?
In 2013 the number of young people owning driving licenses fell yet again. The biggest fall was in young males. The suggestion is that high car insurance rates are pricing youngsters out of their first cars. There is a similar story when looking at mortgages. Unfortunately, it is an even scarier picture. Only 18% of mortgages are owned by the under 35s. When you narrow that down to the under 30s, it falls to 3%.
There is a case to be made that priorities have changed. In some cases, millennials are no longer interested in owning their own home or cars. Public transport is getting better and renting is easier than ever. However, this doesn’t account for the full picture. The economic crisis has hit young people hardest. Disproportionately so.
The cost of living has soared while wages have stagnated. Jobs have dried up, leaving the youngest and least experienced out in the cold. Young people are unable to save in the way that their parents once did. It is much harder to accumulate capital. At the same time, the goal posts keep moving further away. Housing deposits are now larger, insurance premiums and interest rates are higher than ever. The first rung of the ladder just keeps getting higher.
Young drivers face the worst effects of the cost of living crisis. The economic downturn has impacted general living significantly. The cost of living has increased by 75% since 1995. The costs related to driving, however, are double this. Insurance and fuel have risen by over 140% since 1995. Worst of all, tax rates are now 170% higher than in 1995. Adjusting for inflation, 21 year olds in 1995 earned 40% more (relatively) than they do now. This is a huge gap that didn’t used to exist. It’s easy to see why driving is a an expense that simply isn’t affordable.
Insurance costs are also crippling the 17-20 year olds. This means that many in the very early stages aren’t even learning to drive. Young men in particular face exorbitant insurance rates. They are the most likely to crash, however, the high price is ruling them out of driving altogether. Costs of driving lessons are also wildly expensive. At £25 each over an average of 20 lessons you’re looking at a minimum of £500. That’s before you’ve spent £100 to take the test. For young people, this is big money. The cost of driving is now pricing people out from the very earliest ages.
What can be done?
There is very little that can be done to slow down the crazy rise of petrol and diesel. The problem is deep rooted in the economy. This is also true of the general cost of living and employment figures. That relies on larger market forces to turn around. However there are a couple of things that could lower costs and help youngsters get on the ladder.
Black Box technology. Technology now exists to monitor the behaviour of a person’s driving and their ability. Black box technology can test how hard you brake and how wild your steering is. It will measure how well you respond to hazards and your acceleration. Insurers can digest this information and determine whether you are a high risk driver. Rather than lumping all young adults into one ‘hazardous’ category, it separates good drivers. These drivers are offered lower premiums.
Extra driving courses. Young adults can take additional driving courses and – in return – pay lower insurance premiums. These courses go further than the usual driving test. They take new drivers out onto large motorways and drive through the night. These are things neglected by the traditional driving test. It does cost money to take but you will save money on your insurance.
Leasing – Instead of the high costs of buying your first car, young people could look to leasing. Think of it as an extended hire. You pay a much lower up-front payment and low monthly costs for the long term use of a car. There are lots of options for UK based car leasing, most of it affordable for young people.
The housing market is in flux. House prices have risen dramatically in the last ten years. There are scare stories of houses in London increasing by £50,000 a year. Great for homeowners. Terrible for first time buyers. House prices are running away faster than young people can accumulate savings.
As the cost of living crisis rages on, people are struggling to put aside a chunk of their pay packet. Instead, they have to pay rising rent and simple transport and living costs. It takes a lot longer to save the kind of money needed for the increasingly large deposits. At the same time, stamp duty has increased. Similarly the requirements for mortgage lending have become tighter after the crash of the banks. Banks are slowly beginning to lend more and more. However, the days of huge mortgages are gone. You must now have much larger deposits and a higher salary to qualify.
The intense drop in car and home ownership is not a result of preference or change in lifestyle. Young people really are being priced out of these essential purchases. Cars and homes were a good way for our parents to hold and accumulate money. It is a luxury no longer afforded to the twenty-somethings of today. The economic crash has stagnated wages and created unemployment. This is coupled with an astronomical rise in the cost of living and the tightening on lending. It is a truly dangerous cocktail and will harm an entire generation.