Many young Britons believe that the housing market is against them.
In the past two decades, house prices have doubled in real terms, because of both
- tight planning restrictions, which have limited the supply of homes,
- and low interest rates, which have stoked demand for them. Buy to let mistakes
Theresa May, the prime minister, has described the scarcity of housing as
But the reality is that it challenges some generations more than others.
Elderly generation, who bought their houses before the boom, own a huge slice of overall housing wealth relative to their share of the population.
It is a different story for youngsters. A 27-year-old living today is half as likely to be a home owner as one living 15 years ago. Yet there may be a silver lining for Millennials. The thinking goes that, within a decade or two, baby-boomers (the bumper generation born between roughly the early 1940s and early 1960s) will begin to sell up, as they first start to downsize, then move into elderly people’s accommodation and, eventually pass on. As their properties are put on the market, supply will rise, depressing prices and bringing ownership within reach for more people. Calculations give an idea of the effect on house prices when boomers begin to sell up.
England’s owner-occupier baby boomers live in houses with an average of three bedrooms.
If all of them downsized to homes with 2 bedrooms, that would free up housing equivalent to around 2.5% of the current UK housing stock.
A 1% rise in the UK housing stock leads to a 2% fall in prices and rents, all else being equal. On that basis, a mass downsizing would imply a cut in prices of about 5%. Yet so far, the British boomers are in no rush to scale down. In contrast to America, Britain does not have much of a downsizing culture. By one calculation just 40% of Britons who owned their homes at age 50 will move to a new house before they die. The evidence points to geography and climate as the instigator for movement where in Britain sunnier climates are in short supply. Although an intrepid few pensioners retire to the continent, Brexit is likely to make that harder. Government policy also discourages downsizing.
Stamp duty, the tax on home buyers, makes moving expensive.
As house prices have risen in the past decade, the average amount of stamp duty charged per house-purchase has risen by half in real terms. Meanwhile, there is a little direct cost associated with remaining in a large empty nest. If downsizing is unlikely, boomers may at least sell up when they move into an old people’s home. But here, options for elderly Britons are also limited whereby there is a huge opportunity for developers. Perhaps 3% of British over 65s are in some sort of residential care, compared with more like 5% in America.
Britain is undersupplied with good retirement housing.
More than half of the existing stock was built or last refurbished more than 30 years ago. This points to a massive opportunity for assisted living accommodation which needs to be brought into mainstream supply. All this means that it may be only when baby-boomers start to pass away, that lots of housing will begin to change hands. The most common year of birth for the baby-boomer generation is 1947. Since their most common lifespan is around 87 years, peak death could occur in 2034, when Britain will see around 15% more fatalities the house hunters it will be a help. By that time, baby-boomers’ deaths will be pushing down on house prices by around 0.7% a year. Yet just as the housing crisis affects different generations unequally, the impact of the great baby boomer sell-off will have an unequal effect on different groups of youngsters. Landlord Tax on holiday lets
The boomers will leave record amounts of wealth to their descendants.
According to calculations, roughly 100 billion are left behind each year. Over the next 20 years, the total value of bequests is expected to more than double, peaking in 2035. By 2020 a couple will be able to pass on a house worth 1 million tax-free. Most of this new-found wealth will go to a relative few. Nearly half of non-homeowning millennials have no parental property wealth at all according to current research. The other half will be able to use their inheritance to gain greater purchase in the housing market, for themselves or their own heirs and heiresses. A class of wealthy oldsters is moving on, only to be replaced by a class of wealthy inheritors. Demography will put downward pressure on house prices. But some people have a lot more to look forward to than others. For developers, this is something to bear in mind. How do mortgage lenders calculate the affordability
The opportunity for assisted living accommodation is great and the demand is there as the baby boomers become more reliant on healthcare and mobility restricted.
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