Lender of last resort? The Bank of Mum and Dad and Britain’s millennial housing crisis
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Presentation for Resolution Foundation event: Lender of last resort? The Bank of Mum and Dad and Britain’s millennial housing crisis
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Lender of last resort? The Bank of Mum and Dad and Britain’s millennial housing crisis
- 1. December 2018@resfoundation 1 Banking on mum and dad The impact of parental wealth on their children’s homeownership #BOMAD
- 2. @resfoundation 2 Homeownership appears out of reach for lots of young people Source: RF analysis of Labour Force Survey #BOMAD
- 3. 3 For many the deposit is the barrier Source: RF analysis of DWP, Family Resources Survey @resfoundation #BOMAD
- 4. 4 Stepping in to help – the ‘Bank of Mum and Dad’ @resfoundation #BOMAD
- 5. 5 But for all the headlines, we do not know how important it is • To answer this question we collected data on children and parents between 1991 and 2017 • We tracked children once they left the parental home • How homeownership outcomes differ, depending on how much wealth people's parents have @resfoundation #BOMAD
- 6. 6 1. At first glance - really important Source: RF analysis of British Household Panel Survey and Understanding Society @resfoundation #BOMAD
- 7. 7 1. People whose parents have property wealth become homeowners sooner Chart text Source: RF analysis of British Household Panel Survey and Understanding Society @resfoundation #BOMAD
- 8. 8 1. People whose parents have property wealth become homeowners sooner At 30, just 13 per cent of people whose parents have no parental property wealth owned their own home Source: RF analysis of British Household Panel Survey and Understanding Society @resfoundation #BOMAD
- 9. 9 1. People whose parents have property wealth become homeowners sooner Source: RF analysis of British Household Panel Survey and Understanding Society This figure is around 35 per cent for people whose parents are in the top third of the property wealth distribution @resfoundation #BOMAD
- 10. 10 2. The ‘Bank of Mum and Dad’ is about more than property Source: RF analysis of British Household Panel Survey and Understanding Society 31% 35% 44% 54% No parental property wealth 1 2 3 Proportion with degree Lower wealth << Parental property wealth >> Higher wealth @resfoundation #BOMAD
- 11. 11 2. And so we need to make sure that we strip out these effects Source: RF analysis of British Household Panel Survey and Understanding Society 31% 35% 44% 54% No parental property wealth 1 2 3 Proportion with degree Lower wealth << Parental property wealth >> Higher wealth @resfoundation #BOMAD £1,500 £1,700 £1,800 £2,100 No parental property wealth 1 2 3 Gross monthly pay (today's prices CPIH-deflated)
- 12. 12 2. We find that wealth still matters Source: RF analysis of British Household Panel Survey and Understanding Society @resfoundation #BOMAD
- 13. 13 3. And it matters more than in the past Source: RF analysis of British Household Panel Survey and Understanding Society @resfoundation #BOMAD
- 14. 14 It may not be surprising that wealth matters, but… 1. It has a big effect 2. The effect remains even when we account for other advantages that parental wealth brings 3. The importance of parental wealth has increased @resfoundation #BOMAD
- 15. 15 The ‘BOMAD’ – not just a rubbish acronym • Natural for parents to want to support their children • Parents have always had a big impact on children’s outcomes (earnings, education, etc) • Inherited health is the new frontier • Changes how we all think about social mobility • Changes what policy makers do about it @resfoundation #BOMAD
Editor's Notes
- Good morning, Before I begin, like to thank my co-author John Wood. John is responsible for quite a bit of the complex econometric analysis in the paper. However, this paper definitely runs the risk of being one of those cases where economists use fancy techniques and data to find something that would be very obvious to the typical person in the street. You might argue we don’t need fancy analytics to tell us that parental wealth matters. What I think it novel about this paper is that it does three things, which I’m going to cover in this presentation. It uncovers the strength of the relationship between parental wealth the children’s homeownership. It finds the direct impact of parental wealth, stripping away the impact that education and earnings has. Finally it shows that the relationship has strengthened over time.
- Before I get into the analysis proper it’s worth recapping the context: Homeownership is increasingly out of reach for many young people.
- For many potential borrowers it is the deposit that is the issue. Hypothetically it would typically take someone 18 years to save for the average deposit if they were just relying on their disposable income.
- We know that the vast majority of people are not saving anywhere near that long. Why? Well we know that it is increasingly common for people to use the financial resources of their parents or other family members. The Bank of Mum and Dad.
- Although we know that parental wealth matters, it appears to matter a lot. People whose parents are homeowners are a lot more likely to be homeowners themselves.
- They are also more likely to become homeowners sooner.
- Yet, we also know that parental wealth matters for more than just homeownership. Wealth is strongly related to education and earnings…
- And yet, even taking such things into account we find that wealth continues to exert a significant independent effect upon the likelihood that someone will become a homeowner.
- We also find that the importance of parental wealth has increased over time.
- So to recap. Although it will come as a surprise to no one that parental wealth matters, the three things the paper shows is that..
- To sum up. This paper is part of a lot of new work which is broadening the analysis of social mobility from its classic focus on income, labour market outcomes, occupations. This is making us rethink what we understand are the key social mobility issues and also what we, as a society, may want to do about it.