Stan Campbell, a partner in the Later Life Living team at international law firm DAC Beachcroft, “ Understanding patterns in demand is critical to developing housing that is suitable for people in their later years. As partners of ILC, we asked for their view on market dynamics. Their response, in this article, highlights the need for a significant increase in age-appropriate accommodation that has health benefits, for changes to cost models and for greater support from local authorities."

Professor Les Mayhew, Head of Global Policy at ILC, last year published a CSFI report , entitled The Last-Time Buyer: housing and finance for an ageing society. The report argues that downsizing is both necessary and desirable. Despite the efforts of house builders, there is still a massive housing shortage, so to make it an attractive option, the supply of good-quality age-friendly housing needs to increase substantially. Public policy barriers – including planning and taxes – need to be reduced.

The underlying demographics are stark. By 2040, the UK population will have grown to about 73m – nearly 10% more than today. But much more significant is the projection that nearly one in four people will be aged 65+. That represents a 41% increase in that age group to nearly 18m.

A key point about an ageing society is that average household size shrinks because older people tend to live alone or in couples. Between 2020 and 2040, the number of UK households is set to rise by around 3.7m to 32.3m. The growth in older households – over half of them one-person – is set to account for 36% of the increase. However far from the supply of housing for older people increasing to meet this challenge, it has plummeted since 1990.

Demographics

Households have been shrinking for four decades, while dwelling sizes have not changed much. The existing stock is skewed towards family homes, with 60% having three or more bedrooms.

The UK has nearly 29m households, with an estimated 2.86 bedrooms per dwelling. This equates to about 82m bedrooms, of which just over 15m are ‘surplus’, using reasonable assumptions about the number needed for different sizes of household. The trend towards decreasing household size is projected to inflate this bedroom surplus to 20.3m in 2040.

The surplus is concentrated in the older age group. For the 65+ cohort, the number of surplus bedrooms is on track to almost double from 6.6m in 2000 to 12.8m by 2040, unless behaviour and public policy change. The youngest households have a bedroom deficit.

Retirement housing in the UK

The overall picture points to a dramatic shortfall in retirement, or age-appropriate, accommodation compared with the scale of building required based on demographic analysis.

Only 750,000 homes – less than 3% of the UK stock – cater specifically for the retirement market, and this represents only 9.4% of households aged 65+. Around 7,000 new retirement properties have been added annually since 2010; however, this compares with an expected average annual rise of 180,000 in the number of 65+ households to 2030.

The segment grew rapidly in the 1980s thanks to local authorities and voluntary (not-for-profit) organisations, but the Community Care Act 1990 switched the focus to keeping vulnerable adults in the community. After this, the pace of development shrank to a quarter of its peak.

Currently, the voluntary sector accounts for two thirds of the stock, followed by local authorities. By far the most common form of tenancy is social renting. The private sector stands at 12.4% of the stock, but it now supplies as many new properties as the voluntary sector.

Keeping older people fit and engaged is crucial. According to recent studies, retirement communities with on-site support can reduce hospital admissions, cut A&E visits and delay transfers to nursing homes. But the barriers to building more of them are considerable – notably difficulty in getting planning permission.

Making a difference

Surveys have shown that up to a third of older households are amenable to downsizing, but that only a small minority actually do so. For example, one such survey from 2014, commissioned by Legal & General, found that 33% of over-55s would consider moving but only 7% actually did (1). Key reasons have included a lack of suitable properties and anxiety about annual charges.

Although 60% of all properties have three bedrooms or more, this applies to just 10% of all apartments – of which 44% have only one bedroom. So the scope to move from a large family home to a 3-bedroom modern serviced apartment is extremely limited – and expensive.

On the planning front, a study of UK local authorities found that fewer than 10% had clear policies on housing needs for older people, including the number of dwellings required and how to provide them. Combined with planning barriers, it is hard to avoid the conclusion that older people are not a priority for local authorities. A more holistic approach would take into account the health and social care benefits of age-appropriate housing and the intergenerational needs of younger buyers.

This argues for greater collaboration between social care, health and housing teams to devise new models of provision.

Personal decisions to downsize are affected by financial factors. These include whether downsizing will release cash, after transaction costs, for other purposes such as enhancing retirement income or gifting to heirs. A typical purchaser would require the equity in their original property to be well above the average price of the new one, and for annual charges to be affordable.

More flexible charging models, notably deferred fees, have emerged to make purchase prices more affordable and to help retirees plan their outgoings. Some costs are rolled up for payment out of housing equity on death or sale of the property; a model that is attracting investment from large institutions.

If leasing or buying a smaller property is involved, stamp duty will apply. The evidence suggests that stamp duty deters downsizing. Average stamp duty per transaction has increased at 12.3% per annum since 2008-09, whereas house prices have only gone up by 4% a year.

Conclusions

Under-occupation of the housing stock caused by an ageing population is one of the factors that has created a dysfunctional housing market. Older households are only 40-60% efficient based on space usage, whereas space is at a premium for younger ones.

Far too few dwellings are being built that cater for older people. Retirement housing has only accounted for about 125,000, or 2%, of all new homes built since 2000, but each year around 700,000 people turn 65 years of age.

With the number of households growing more quickly than the population, average household size is set to continue its decline. This causes increasingly inefficient use of the housing stock. The number of ‘surplus’ bedrooms is forecast to exceed 20m by 2040, 60% of them in older households.

Government policy is that people should be supported to live in their own homes independently, and that they should not have to sell up to pay for care. How can this policy be reconciled with the call for downsizing?

It is not clear how the recent Government announcement on health and social care is going to affect the future of retirement housing. The present policy of supporting people in their own homes – scattered through mainstream housing – may not be affordable in the long run. Also, the promise that no social care user should have to sell his or her home to meet care costs needs to be clarified:

• It should not be interpreted as discouraging downsizing. Indeed, the policy should highlight the benefits of doing this.
• The policy should not be seen as recommending that older people should stay put come what may – particularly if there is more suitable accommodation available.
• The government should affirm that people living independently in retirement communities that offer care services are living in their ‘own homes’ and should be supported as such.

Another policy circle that needs to be squared concerns the government’s net zero carbon emissions target. The Committee on Climate Change found last year that emissions reductions from UK homes had stalled. Given an inflexible housing stock, the provision of modern age appropriate accommodation and efficient use of space must be part of the policy mix. The present ‘just build more’ dictum pays little attention to climate-related problems.

On stamp duty, the government introduced a stamp duty holiday during COVID but it will be back to normal from October 1st. However, there is a case for last-time buyers to be treated in the same way as first-time buyers, with stamp duty for purchases up to £300,000 nil-banded or abolished.

Policies affecting housing should all pull in the same direction, but it is not clear that policy makers have grasped the scale of the problem. Professor Mayhew’ s report proposes a more holistic approach to housing policy and population ageing. We at ILC support the idea of a national plan, with requirements for local authorities and local health and social care services to deliver in accordance with it and also his recommendations.

Recommendations For Government

- Far too few homes are being built to cater for older people, who therefore tend to stay put in dwellings that are increasingly under-occupied. This calls for a national strategy and for government departments and local authorities to be accountable for its delivery.

Recommendation: A new government strategy on housing for older people should be established as a key part of the housing mix. It should call for a joined-up approach between departments dealing with housing and health, with a cross-departmental mechanism to reconcile differences and identify gaps.

- Important supply-side constraints to providing purpose-built developments include planning permission and the indifference of many local authorities to the needs of older residents.

Recommendation: In line with the national strategy, local authorities should be required to have a plan for retirement housing, including identifying appropriate sites.

- If more people lived in retirement communities, their health and wellbeing would improve. Health and social care costs would be more manageable and services easier to deliver.

Recommendation: The NHS should acknowledge these benefits, which are largely ignored in its long-term strategy and in planning services for older people.

- Government policy that people should not be forced to sell their homes to pay for social care sends a mixed message.

Recommendation: The government should promote the benefits of downsizing and incentivise people to do it before social care is needed.

- Stamp duty tends to jam up the housing market and can add significant costs to downsizing.

Recommendation: ‘Last-time’ buyers should be put on an equal footing with first time buyers with property purchases of up to £300,000 nil-banded.

Recommendations for the industry and its customers

- While there is plenty of interest in downsizing, surveys show that the number actually doing so is low. A key reason is the shortage of suitable housing at affordable prices.

Recommendation: House-building priorities need to change to cater for this market.

- Financial arrangements built into leases that align the outgoings of retirees with their income, which is often fixed, help avoid large unexpected costs. The deferred fees model achieves this by rolling up some costs until the property is sold.

Recommendation: Models that defer costs until housing equity is released should be encouraged and monitored for transparency of costs to residents and returns to investors.

- The financial aspects of downsizing may be complicated and include questions about value for money and security of tenure.

Recommendation: Independent guidance should be available to cover all aspects of the purchase process. The Money and Pensions Service is a possible vehicle for this.

- Retirement housing has an important role to play in meeting the UK’s target of net zero carbon emissions by 2050.

Recommendation: Retirement communities should aim to be carbon neutral and use renewable energy. Retrofitting retirement dwellings should be supported by the taxpayer.

References

(1) - Centre for Economics and Business Research. https://cebr.com/reports/uk-last-time-buyer-market-worth-820-billion

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