Opinion: we need to give property-rich baby boomers cash and more to move
The Government may soon pay older people to downsize but Felicity Hannah thinks they should go even further.
We must do more to facilitate and incentivise older people with spare rooms to downsize, even if that means handing over cash and spending to build more homes.
There are reports that the Government is in the process of putting together a white paper on how to encourage people to downsize in retirement. There are no specific hints as to what it might contain but people are predicting Stamp Duty exemptions or other financial incentives.
I hope it does. We need a Stamp Duty exemption for empty-nesters choosing to downsize and free up their large homes. We may also need a further financial incentive to cover their moving costs.
But we also need to plough money into building suitable retirement properties and homes just as much as we need to build homes for first-time buyers.
This may stick in the gullet of some people who think that the baby boomers have already enjoyed significant wealth at the expense of younger generations – it sticks in my gullet if I am honest – but we need to stop thinking like that.
Solving the housing crisis is going to take action at both ends of the property market, targeting first-time and last-time buyers.
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Why it matters
I quite often write about the property wealth gap in a burning fury.
It's outrageous that more than a third of property wealth in the UK is now owned by households where at least one occupant is 65 or over. It's unbelievable that almost one in 10 of 55 to 64-year-olds live in households where the net property wealth is £500,000 or more, compared to 28% of 22-30-year-olds who still live at home.
It’s horrible that the average age of a first-time buyer has now risen to 37 and shocking that the number of people buying a first home fell from more than half a million to just 200,000 a year.
Older householders with spare rooms could make a big difference to this mess by downsizing and freeing up family homes for couples with children. They would then vacate their starter homes and the whole property market could get moving again.
“This would be a triple win for Britain and for inter-generational fairness,” says Saga's director of communications, Paul Green. Saga has been lobbying successive Governments for a Stamp Duty exemption for downsizers and buying age-appropriate homes.
“ Independent economists estimated this would prompt an extra 111,000 family homes would come onto the market; boost the building of homes suited to older generations; and, it could also boost the Government coffers due to an estimated £500 million in Stamp Duty from consequential house moves.”
Why there needs to be a financial incentive
Okay, maybe you completely agree with everything I’ve written but you disagree that there should be a financial incentive. After all, older people are far more likely to own significant property wealth and, if they are downsizing, then they're about to cash-in on a great big chunk of that.
However, downsizing is an expensive business and that could be putting people off. The online estate agent OwnerSellers recently revealed that the cost of downsizing from an average family home to a flat is just under £18,000.
That’s based on the value of the average detached family home in England – £381,211 – and buying a two-bedroom flat at the average price of £268,174. Once you factor in agency fees of £8,234 at 1.8% of the sale price, Stamp Duty at £5,909, conveyancing fees of £2,050, the HomeBuyer’s report at £600, and removals and packing at £1,050 and you have a total cost of £17,843.
For Londoners that cost rises to £42,332. Add in all the effort and it’s easy to see why it’s such an unappealing prospect.
On top of that, what do they do with the money they make in the sale? Inflation is high, interest rates are low, the real value of that cash could simply drain away in a standard savings accounts. Compare that to house prices climbing by 5-10% a year and there are obvious reasons older empty-nesters are hesitant to move.
There are significant financial downsides to downsizing, which is why there needs to be a financial incentive.
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Build the right homes
It’s not enough to incentivise downsizing. We also need to build the right kind of attractive homes, which are suitable for different kinds of people.
Some empty-nesters will simply want good quality smaller homes close to good amenities, and unless we build more of those then they will end up competing with first-time buyers and driving up prices.
Other older people will want to move to planned retirement communities, where they can access help if they need it and enjoy taking part in organised clubs and activities.
Research published by Age UK this month revealed that half a million people over the age of 60 usually spend each day alone and do not interact with anyone, while a further half a million commonly don’t speak to anyone for five or six days a week.
If we build the right kind of communities and make them affordable and attractive then many older people will benefit hugely from moving to more suitable accommodation.
Finally, we have a desperate shortage of bungalows in the UK, despite those being the most suitable property type for people as they become frailer. Analysis carried out by the Telegraph shows that the high demand for single-floor properties means that the average bungalow commands a 16% premium, with some going for twice the price of homes with stairs.
Yet figures from the National House Building Council show that just one in 63 new homes being built is a bungalow, compared to one in six during the 80s.
Offering money to older homeowners, targeting investment at retirement properties and helping the end of the market that has the most wealth might seem like a strange way to help first-time buyers. But the entire market is broken and fixing it will take more than building starter homes.
Read these next:
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Opinion: we need to build more homes for later life
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Comments
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"the snowflakes expect a house to be dropped into their laps whilst they continue their life style of going out to all the Clubs, Bars and Cafe's." Do you mind if I make some wide generalisations about your social group? - Like most at the time you probably left school at age 15-16 and then held a mediocre job throughout your career. You were able to do this because back then you could still get a 'Job for life' and were able to have a good standard of living even if in a low-productivity job. - Like most boomers you probably brought your first flat in your early twenties, even though you weren't earning very much. - You probably benefited from the removal of Schedule A taxation and the sudden increase of house prices, which it's removal caused. - You probably thought the rampant inflation and high interest rates of the mid to late 1970's weren't your fault, even though you help elect the governments which were responsible for it. - You probably tell people that the high interest rates of up to 15% were really, really penal all the while conveniently ignoring the fact that the average pay rise over the same time was 21%. - You probably also neglect to tell people that you were able to survive those high interest rates on just one salary, and when it was over you found that inflation had brought your mortgage down to pocket money levels. - You probably don't like discussing your gold-plated, defined benefit pension or that you didn't pay in anywhere near as much as you should, instead relying on your kids to fund your retirement. - You probably don't get involved in discussions where someone, like me, points out that boomers, having little money saved in a pension but owning most of Britain's housing wealth have leveraged that wealth to buy up starter homes and then, looking for a "passive income" rent those properties to the same young that they have priced out. - You probably think that getting a guaranteed 2.5% increase in your state pension is fair, even if wage growth is flat or falling. - You probably ignore that fact that todays young pay higher rates of tax as well as tax on more things than you did at the same age. - And you will probably claim that it wasn't your fault / had no idea / that I'm just a snowflake when I point out that governments, who you elected, decided to reduce your tax bill by employing public sector workers, paying them far less than market rate but promising them that *my generation*, though *my taxes*, will pay them hansom pensions when they retire. But my generation has never had it so good, what with the iPods and iPhones and latté's, hey?
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My wife and I live in a four bedroom house and have already looked into downsizing on a number of occasions. The last time being summer 2016 when the house valuation was higher than ever. Unfortunately the price of a 2/3 bedroom bungalow, in a similar area that needed completely modernising, was the same price as our house. This was checked with several estate agents who all told the same story but worse was to come! The rooms in the bungalows tend to be very much smaller so our "old fashioned" large furniture would have to be disposed of as well. We also endured interest rates of 15% when buying the house so young people now enjoying 2% mortgages should be overjoyed, and we also started married life with begged and borrowed furnishings so I really will need a big incentive to consider moving on!
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When my Wife and I purchased our first house in the 1970's the interest rate was 15%. My salary just paid the mortgage and my Wife's salary fed us and paid the bills. It also came hard when I was out of work and then had to take a lesser paid job. Now when you watch the property programmes on TV, the snowflakes expect a house to be dropped into their laps whilst they continue their life style of going out to all the Clubs, Bars and Cafe's. Therefore I consider that we have worked for what we now own.
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25 January 2017