Shifting demographic forecasts will undermine housing plans

To Let signsThe present government is wrestling with the unrealised desires of house-buyers to secure a home at an affordable price – like previous governments.  A strong “buy-to-let” (BTL) market and the benefit to house-builders to maintain tight supply, among other reasons, has kept demand stronger than supply.  Increasingly, an aging population could now undermine attempts to allow more people to join the house-owning population.

To ease this pent-up demand, successive governments have introduced policies to help people move onto the housing ladder.  increase supply or reduce the financial burden to first-time buyers.  These included reducing the attractiveness of BTL to boost supply or “help-to-buy” to reduce some of the financial increase supply or reduce the financial burden to first-time buyers.  Now, the government is looking to speed up residential construction by cutting one perceived barrier to new homes, planning permission.

However, even with the best intentions, these efforts can only be partly successful.  Without regulation, economics dictate that those best able to pay will get the houses. And who has money?  Besides the well-publicised foreign investors and BTL investors, one group that is growing in significance is older citizens.

For those 65 and over, rising house prices, supportive pensions, and low inflation have reduced the need and the desire to downsize in later life.  The possibility of putting up children and grandchildren, passing on an appreciating asset, and the high cost of moving makes it attractive to stay in the family home even after children have moved on, or a life partner has passed on.

With fewer family homes, not only is property availability limited, but the market becomes constipated.  Growing families are forced to remain in cramped starter homes, and this moves the first rung of the housing ladder out of the reach of many first-time buyers.

The “Families and households” data from the Office for National Statistics’ shows that between 2008 and 2018 the number of households increased by 2.7% and the share of those 65 and over increased by a slightly less 2.3 percentage points.  However, household ownership by those 65 and over increased 33.0%.

The data doesn’t show the nature of the houses.  Are large houses being downsized into two smaller dwellings for a family member, or as family and holiday homes?  What is clear is that house ownership by those of 65 and older is accelerating in comparison to the housing stock and is projected to continue to do so.

Adding new housing stock will partly improve the availability of houses.  However, those most able to buy properties are not first-time house buyers, but those with money to invest.

Finding a solution that doesn’t penalise any group, but helps lubricate the housing market will be hard to find.  Potential solutions could be to improve the benefit of downsizing, such as tax breaks for moving into smaller properties or inheritance tax breaks.  Or raise taxation to incentivised downsizing, for example annual rates based on the increase in property value or the number of empty bedrooms – Though this would politically challenging.

However, given the forecasted growth in average age and the relative spending power of the “grey pound”, the impact of older buyers will only increase.  Bringing increased friction between those wanting to join the housing buying club and staring upwards at those already several rungs up the ladder.