The boomers ate all the avocados

Declining home ownership is the most prominent worry about younger generations, and the changes are indeed large. So far millennial families are only half as likely to own their home by age 30 as baby boomers were by the same age.

An even bigger reduction in access to social housing means that four-in-ten millennial families at age 30 live in the private rented sector, four times the rate for baby boomers when they were the same age. This rise in private renting means that young adults face greater housing insecurity than previous generations did. They are compromising on quality and convenience too. Adults aged under 45 have slightly less space than they did two decades ago, whereas over 45s have more. And young adults are commuting longer distances: millennials are on track to spend 64 more hours commuting in the year they turn 40 than the baby boomers did at that age.

While home ownership falls take most of the headlines, an even greater problem threatening day-to-day living standards is the pressure that housing costs put on family finances. Millennials are spending an average of almost a quarter of their income on housing, up from an average of just 8 per cent among the silent generation at the same age.

These generational shifts are likely to persist. Even a repeat of the best economic conditions of recent decades would result in millennials only catching up with the home ownership rates of generation X by the age of 45, and still falling far short of baby boomer rates. Fast-growing inheritances that are set to double in the coming two decades will help some beyond this age. But they are much less likely to benefit the almost half of 20-35-year-old non-home owners whose parents do not own either.

Pensioner incomes have performed strongly in this century: median pensioner incomes are now higher than median working-age incomes after housing costs. There are headwinds to maintaining this performance for future retirees, however. That is because private sector membership of generous ‘defined benefit’ pensions, for those around age 35, halved for employees born in the early 1980s compared to those born around 1970. ‘Automatic enrolment’ of employees into less generous ‘defined contribution’ pensions does, however, mean that younger cohorts have higher overall pension scheme membership rates than predecessors did at each age.

If more favourable economic conditions returned (and under a simplified assumption of constant investment returns), auto-enrolment plus the move to a flat-rate State Pension mean future pensioners could achieve broadly similar outcomes to recent retirees on average. However, there are very big risks around these outcomes for younger generations that those currently retiring have not been exposed to.

Risks include the rate and timing of investment returns. A 1 percentage point decline in investment returns in each remaining year of working life would reduce retirement incomes for millennial men born 1984-86 by 8 per cent, well below the outcomes enjoyed by recent retirees. In the defined benefit system it was firms that bore this investment risk rather than individuals. The shift to defined contribution pensions plus new ‘pension freedoms’ mean people are increasingly having to individually plan for the wide variation in how long they might live. And unlike defined benefit pensions, defined contribution ones rarely provide protection from inflation during retirement, meaning future pensioners will be increasingly exposed to price shocks.