How the house price boom at the turn of the century slashed social mobility

It’s not uncommon for millennials and Gen Z to rage against baby boomers and Gen X for hoarding housing wealth – but a new study suggests rising house prices creates more haves and have-nots for generations to come.

The Institute of Fiscal Studies’ (IFS) research has linked surging house prices between the mid-1990s and mid-2000s to reduced social mobility and inequality for the next generation as well as their own.

Average house prices rose from around four times annual earnings in 1995 to eight times by 2010. The median average home cost 7.7 median average earnings for full-time employees in England in 2024 and 5.5 times average earnings in Wales, according to the Office for National Statistics.

The rises at the end of the 20th century and the start of the 21st created enormous wealth gains for some households but not others. That drove a big increase between homeowners and renters and had a knock-on effect for the beneficiaries’ children, IFS found after analysing Census data.

Peter Levell, a deputy research director at the Institute for Fiscal Studies, said: “The surge in house prices from the mid-1990s until the mid-2000s created significant and lasting inequalities – not just between people at the time, but among their children as well.

“Studying this period of booming house prices helps us to separate the role of housing wealth gains in child outcomes from other reasons the children of wealthier parents might do better (such as the intergenerational transmission of skills or family connections).”

IFS found that children of homeowners in booming areas, such as London and the South East, having relatively more housing wealth themselves in their late 20s to late 30s and they were more likely to own homes than children of renters.

IFS estimated that each £100,000 gain in real-terms housing wealth for parents over 1991–2011 led to their children having on average £15,000 more housing wealth when aged 28–37.

The children of parents who benefited from the house price boom were more likely to own a home in London. The house price boom gave people from outside the English capital the opportunity to buy a home in the most expensive property market in the country.

That also meant children of parents who were boosted by the boom were more likely to enter highly paid occupations in London than other children.

IFS estimated each £100,000 increase in parents’ housing wealth increased the probability of earning a top 20% salary by 1.5 percentage points.

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Male children of parents who did better in the housing boom were also more likely to move into the most highly paid jobs than other male children, although IFS researchers did not find the same gains with female children.

IFS found that each percentile increase in parents’ gross housing wealth led to a 0.28 percentile increase in their children’s gross housing wealth but without the boom it would have been only half the size at 0.14 percentage points.

The findings show that policies that change the taxation of capital gains on housing wealth are likely to affect wealth inequality in the next generation as well as the current one.

The research comes amid continued conversations about wealth and property taxes with council tax and stamp duty both under the spotlight in the lead-up to November’s autumn budget.

Chancellor Rachel Reeves opted to introduce a high value council tax surcharge from April 2028. Dubbed a ‘mansion tax’, it will apply to around 100,000 properties and is expected to raise £400 million per year.

Levell added: “Our results imply that policies that affect the size of housing wealth gains – including changes to taxation or housing supply in booming areas – would affect inequalities in future generations as well as in the current one.”

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