Downsizing, moving from a large family house to something smaller. Seems simple, doesn’t it? Get the oldies out of their large houses, and make more space for those ‘hard-working families’ so beloved by politicians of all varieties.
This option releases equity from the larger house, cuts the cost of maintaining a house, and funds a more comfortable retirement; it’s a win-win situation all round.
The reality is somewhat different.
Is there a shortage of retirement housing in the UK?
It is alleged that there is a retirement homes shortage. According to Key Retirement, an equity release company, in a report dating from 2018:
- A third of all over-65s want to downsize.
- 620,000 over-65s have looked into downsizing but cannot find a suitable house.
- In 2018 only 7,000 retirement homes were built.
According to This is Money, just 1% of British people in their 60s are living in retirement housing, compared with 13% in Australia and New Zealand and 17% in the USA.
Sheltered housing complexes
The tenure in many retirement complexes is rent or lease, which is unattractive to older homeowners, though by researching local retirement developments offered by a well-known retirement housing provider, I found deals that offered either part rent/part buy or, alternatively, purchase with service charges starting at £192 per week. These flats/houses are really upmarket sheltered housing developments and will suit the comfortably well-off single person or couple seeking support, rather than domiciliary care. This is a small sector of the retirement market, and will not be attractive to many retirees.
What about moving to a smaller terraced house?
If you have been living in a detached house in a quiet area, moving to a semi or a terrace in a busy urban area is not an attractive option, as an example of downsizing in the West Country featured by SAGA showed. There are a lot of people who would baulk at the sacrifices made by the couple in the story, unless there were pressing financial reasons.
The housing ladder
We are often told that over-65s are stopping young families from getting onto the housing ladder, but is that true? The period from 1970 to around 2000 did feature a situation where people did climb a housing ladder, starting with small terraced housing and by degrees ending up with detached three- to four-bedroom ‘family’ houses. This ladder has disappeared for many aspirant homeowners for various reasons. These family houses are not mansions, as the big 12 house builders (now possibly 11 if Barratt’s £25bn takeover of Redrow comes to pass) have minimised room sizes, which means more money for less space. We are now far from Parker Morris’ standards on room sizes.
UK house prices are 65 times higher today than in 1970, and this has led to shrinkflation and shortage in the housing market.
Housing shortage and higher rents
The forced sale of social housing and the growth of buy-to-let investment have turbocharged prices, created shortages in the housing market, and increased rents. Higher interest rates have also driven up rents and driven some buy-to-let landlords to sell their portfolio to reduce debt, in the process reducing the rented housing stock still further.
Help to buy and stamp duty holiday policies from the government have added more fuel to house price inflation and reduced affordability still further.
The building industry blames a sclerotic planning system, and those in the retirement housing sector blame baby boomers for not downsizing and freeing up housing for families. It is unlikely that any government will return to the pre-1947 Town and Country Planning Act situation, as the forces of resistance may sometimes present as NIMBYs, but they are an influential group of voters.
Downsizing not attractive to many homeowners
Downsizing is faltering because it is not an attractive option for many homeowners for the following reasons:
- Selling your house and buying another is one of life’s most stressful activities.
- The cost of buying and selling is also eye-watering, with stamp duty a significant cost, and some homeowners feel it makes moving pointless.
The allegation is that retirees are put off by the stamp duty bills.
Cutting stamp duty for downsizing is a possibility, but it might be difficult to defend because it will be rewarding the already well-off with a tax cut. If this were taken up, the Dilnot report social care scheme would have to be implemented immediately, and inheritance tax would have to be made less avoidable, as well as universal and more progressive in nature.
Equity release
The growth of the equity release industry offers many of the benefits of releasing equity without all the faff of downsizing. There are pitfalls in terms of the overall cost, because the homeowner is leveraging his present to fund the future at some cost, with equity release rates even higher than a normal residential mortgage. The overall debt is reliant on house price growth to sustain the eventual repayment of the loan after death, so perhaps a government-based downsizing scheme might be a better option for the economy.
Downsizing from the larger 2000 sq ft+ detached three – or four – bedroom house to something smaller increases competition for those smaller houses with families who are looking at those houses as the first step into ownership. Competition then increases their price. The price differential between the larger house and the smaller may then not even be enough to pay the stamp duty, let alone release much equity. So, not enough to warrant the effort.
Retirees move for many reasons, such as being nearer family, escaping to the country/coast, etc. The retirement housing industry has not really picked up on this phenomenon, unless you include mobile home parks. Nor is the increasing incidence of motorhome/campervan parking problems being factored in. Motorhomes appear to offer a free and easy nomadic style, but experience of them in coastal areas offers a cautionary tale, as local residents find their semi-permanent parking on local streets objectionable.
So, should downsizing be encouraged or supported?
On balance, the answer is yes. At the margin, the release of larger properties onto the market will assist families to get the space they need, but not as much as stopping the sale of social homes and the building of new social homes to meet all needs.
Releasing equity by downsizing might reduce the number of cash-poor retirees claiming pension support while living in larger homes, and the release of equity might bolster economic growth a little, with some sectors, like hospitality, the likely beneficiaries.
How can downsizing be supported?
As stated, simply cutting stamp duty would be controversial and would need to be funded with tax increases elsewhere within the same cohort of individuals. The constant taxing of the young to pay for the old is only possible if there is fairness and balance.
Reforming the process of buying and selling houses may do more than cuts in stamp duty and will benefit everyone. In 2022, 31% of all house sales fell through. In 2023, that grew to nearly 50% as the market fell. There are many reasons for this, but mainly because no one in the process feels real financial pain for not holding up their part of the bargain. The Scottish system is sometimes held up as a way forward, but it has its own downsides. Perhaps a scheme that uses IT to speed up transactions, combined with a process that imposes painful penalties on those who try to bilk the system, might encourage more oldies to downsize. Buying and selling a house is a highly stressful process, and reform is needed to reduce that stress.
Finally, with a growing older population in the UK, there is a market opportunity for housebuilders to deliver products that will meet the needs of potential buyers, rather than continue to offer tiny retirement homes with outsized service charges or rents.
Cohousing
There is a growing number of ad hoc mutual housing developments, or Cohousing as it is sometimes termed. From what I have seen, it tends to be single-sex (mainly female) and exclusive to the better-off middle class. It requires some mutuality in terms of social kinship, but it should be possible to create a development based on a central garden or square, so that people can interact and socialise easily when they want, how they want, and in the way they feel is appropriate. Cohousing may not suit everyone, but it might be an alternative to the usual retirement complex, where residents are selected on the basis of income rather than compatibility.
Overall, the message of this article is yes, downsizing is a good idea, but it needs changes within the housing market, legal reforms on the conveyancing of property, as well as new thinking, new products, and perhaps some financial encouragement from the government to overcome market inertia.
