Young people lose out in national economic decision-making, partly due to low voter turnout. More engagement with economics and voting is important, but real potential to move economic debate forward might lie in developing mutual understanding and consensus about the economy between generations.
The Resolution Foundation recently released some analysis as part of the launch of their Intergenerational Commission which paints a detailed picture of a generation whose incomes have flatlined and whose economic future looks increasingly shaky.
According to the report millenials (those born 1981-2000) have lost out the most in the pay squeeze since 2008. The earnings of those in their 20s fell faster than any other age group and in 2015 median wages were still 12% below their level in 2009. A typical millennial has earned £8,000 less during their 20s than a typical person in the previous generation – generation-X (those born 1966-1980).
The report’s pessimistic forecast for millenials’ average lifetime earnings predicts them to be 1% less than the generation before them. By way of comparison Gen-X’s (1966-1980) lifetime earnings will be 20% higher than Baby Boomers’ (1946-1965). Whilst 1% less doesn’t sound like a lot, as the Resolution Foundation put it:
“This would make the millennials the first ever generation to face a generational pay penalty by earning less than their predecessors over the course of their working lives.”
Worryingly the forecast doesn’t take into account the rise in low paid self-employment and job insecurity. Nor does it include housing costs and net housing wealth, increases in which have functioned as an intergenerational inequality ratchet. The Resolution Foundation report that people in their 30s are 50% less likely to own a home than baby boomers were. Millennials are also spending an average of £44,000 more on rent in their 20s than baby boomers did, a sum which is generally a transfer from the young to the old.
On top of scrapping the Educational Maintenance Allowance (EMA), increases in tuition fees and cuts to working age benefits the tax and benefit changes to be implemented between now and 2020 will take another £1.8 billion from millennials and give £1.2 billion to baby boomers relieving those in their 30s of an additional £220 per year.
The lacklustre turnout at the polling station from young people compared to older voters means their interests tend to get sidelined. Only 43% of 18-24 year olds voted in the last general election compared to 78% of over 65s. However, despite early reports of low turnout in the EU referendum, the turnout for 18-24s was in fact much bigger than most people expected at 63%, proving young people can be mobilised if they feel strongly enough.
Millenials certainly need to engage with economics and be more vocal if they have any chance of not being looted further. But crucially, a dialogue between generations about what might constitute good and fair economic policy has the potential to build consensus and call out quick fixes and short term vote winners for particular groups. The economics of housing is a good example.
Towards an intergenerational consensus on housing policy
As much as the government’s Help to Buy scheme may seem like a lifeline for millenials desperate to get out of the rent trap, it’s a disastrous policy for housing affordability as a whole. By topping up first time buyers savings toward a deposit- and enabling them to take on a larger debt - it merely increases the amount of money chasing the same amount of homes- pushing prices ever upward. A few people are helped to achieve homeownership but at the cost of making it more difficult for those behind them - unsustainable house prices are artificially propped up.
A radical overhaul of the housing market to deliver long term affordability might involve:
- Strengthening private tenants’ rights, including much longer minimum length of tenancies as well as controls on annual rent increases.
- Measures to reduce competition for properties from second homeowners, buy to let landlords and speculative foreign investment. As well as, counterintuitively, tighter loan-to-income requirements on mortgages, to reduce easy credit flooding the housing market.
- Action on supply, probably including a significant return to local authority house building and penalties for land-banking.
- A Land Value Tax to discourage underutilisation of land and re-capture and redistribute the unearned increment from rising land values.
- Cooperative and non-profit forms of ownership like Community Land Trusts could lock-in affordability.
But even if millenials voted in droves wouldn’t these sorts of measure be opposed by homeowners who want to see their property values rise? Perhaps not if we had forums for people to explore and develop points of consensus on what an effective and fair policy for housing would be in the long term – and not just for the individual at that particular stage in their life-course.
Hidden trade-offs can be made more explicit in this sort of context but so can false trade-offs: like the idea that increases in property values have an upside benefit in increasing housing wealth for average homeowners. I would argue this is false. As the majority of us earn our incomes from working not from increases in the value of assets, higher property values mainly represent higher lifetime housing costs for families in the long run. Families with more than one child experience this intuitively: any inherited property wealth is split up and then used to offset a small portion of the new higher housing costs.
Promisingly the Resolution Foundation report that support for more local housebuilding has increased from 30 to 50% across all generations, suggesting a greater concern for affordability over individual property wealth. If the public could re-design housing policy from scratch, would they design out the idea of housing as an investment vehicle altogether? What might that look like?
Creating forums for people of all ages to engage with economics and talk about how it affects their lives is part of what the RSA’s Citizens’ Economic Council aims to achieve, hopefully it will also demonstrate the potential for deliberative dialogue between generations to push national economic debate forward. I’m looking forward to what the council will propose.
(estimated to be £825,000)