For many of us, our home can form an important part of our retirement planning. Once the kids have flown the nest, downsizing is one way to release enough cash to provide an income, pay off debts or supplement savings, and it can also reduce the hassle of home ownership through lower maintenance costs.
But according to a new report there is a problem. A lack of supply means many older people are ‘stuck’ in their existing homes with no suitable alternatives for them to downsize to.
Table 1: Figures on Moves into McCarthy Stone Properties for the year 2014/15
The report, ‘Generation Stuck: Exploring the Reality of Downsizing in Later Life,’ was written for us by the International Longevity Centre – UK. It revealed one in three people aged over 55 – equivalent to 4.7 million people – are considering, or expect to consider, downsizing in order to improve their standard of living.
Figure 1: Which of the following currently best applies to you? – Results from YouGov Survey
In addition, almost three in ten who have already downsized or are considering downsizing, expect to or did release in excess of £100,000 in equity this way, with a third saving the cash for a rainy day.
Figure 2: Approximately how much equity did you/do you expect to release by downsizing? – Results from YouGov Survey
Figure 3: Regional Variation in the Expected Equity Released through Downsizing - Results from YouGov Survey
But years of underinvestment in suitable housing, is typically what has stopped them moving, rather than a desire to rattle around in a large house just because they can. In fact, those over 55 who have managed to downsize to a suitable new home account for just 15 per cent of respondents. Add together the people who have already downsized and those who are considering downsizing and half of all over 55s want to downsize or have done so.
Stifling downsizing is a chronic under-supply of suitable properties for later life, including purpose-built retirement housing. This reality means the UK is fast running out of homes for its ageing population, leaving many people stuck in under-occupied properties unsuited to their needs.
According to recent research, more than half of all people who are classed as under-occupiers in the UK are aged 55+ and at current market trends, it would take 20 years for housing supply to meet the demand of just half of people aged 60+ interested in downsizing.
As part of our report, we surveyed 1,252 homeowners and found nearly half would consider downsizing or have already moved to a more suitable property. Their reasons includes lower property maintenance (56%), reduced bills (43%) and children leaving home (43%).
Figure 4: Which, if any, of the following are reasons you downsized or would consider it? – Results from YouGov Survey
Releasing cash is also a powerful motivation. That people expect to release more than £100,000 in equity from downsizing is reinforced by our own figures. Our homeowners release an average of almost £60,000 in equity, with 19% releasing more than £100,000.
Table 2: Average Equity Released by Downsizing by One Bedroom - Knight Frank Survey Results
After savings, our survey found the most common uses for the equity released were enhancing day-to-day life, cited by three in ten, giving it to family members intended by almost one in five and, for a third of those aged 55-59, putting it towards a pension. Interestingly, equity release is much less frequently used for big purchases, which was mentioned by only 14% of respondents, or to reduce debt, which was citied by just one in ten.
Figure 5: How did/will you use the equity release from downsizing – Results from YouGov Survey
Why moving rates are low for the older generation
We commissioned the research as the situation is getting critical and we need to ensure the Government does something concrete about this issue. 60% of projected growth in households over the next two decades will be amongst those aged 65 plus, but the UK has one of the lowest moving rates amongst our older population. In 2011, only 1% of people aged 60 plus in the UK had moved into retirement communities, compared to 17% in the US and 13% in Australia and New Zealand. The fact that almost half of the homeowners we surveyed wanted to downsize makes this an area that cannot be ignored any longer.
However, in much of the recent debate around housing and later life there is an underlying thread that under-occupancy by older people is a social injustice against younger generations struggling to get on the property ladder. Yet while an increased trend to downsize in later life would offer benefits for the housing market at large, framing the issue as one generation against another distorts the argument and ignores the core elements that impact the reality of downsizing. It stifles discussion on what needs to be done to develop the right policy environment to create housing opportunities for those wishing to downsize in later life. Fundamentally, the notion of downsizing should be about choice rather than obligation. The debate should therefore be about how we increase housing choice and information for older people.
Benefits of downsizing
The benefits of downsizing are compelling for many people as the research showed.-
Financial Benefits: Downsizing can allow people to gain access to the wealth held in their properties, which can provide financial resources that can be used to fulfil their own retirement aspirations or to help other family members cover important costs like home deposits or university fees.
Reducing Domestic Maintenance: Having fewer rooms and space to care for can be a relief to people in later life, especially as they start to experience age-related physical changes but also as they consider how else they could use their time in retirement.
Health Benefits: Downsizing in later life can allow people to move into properties better suited to their physical needs and that can have a positive impact on their health and wellbeing. Nearly two-thirds of homeowners in a survey (SOURCE:McLaren et al. (2003)) reported improved wellbeing after moving into specialist retirement housing. Moreover, such housing has also been shown to reduce the frequency and duration of hospital visits (SOURCE: Kneale (2011); IPC (2014)), which contributes to the cost savings to the NHS and social care providers.
Social Benefits: Moving to a smaller and retirement focused property gives people access to greater social contact and interaction in later life. This can help prevent experiences of social isolation and loneliness, which can have negative effects on wellbeing and health. Research published last year by the Institute of Public Care (IPC) showed residents of retirement developments are less lonely than those living in other general housing. McCarthy Stone Homeowners typically move about four miles from their existing home, allowing them to maintain contact with existing neighbours and friends.
And that a substantial number are not persuaded by the downsizing arguments shows there is still a lot of work for Government and other interested parties to promote the benefits of ‘rightsizing’. Our survey revealed some of the major reasons why many people do not wish to move.
The Financial Factor: Half of respondents, across all age groups, were still able to manage their current homes, financially and physically. Four in ten also said they saw no benefit, financial or otherwise in downsizing.
The Emotional Factor: The strength of emotional attachment people have to their homes can be a substantial deterrent to downsizing. Our survey found nearly a third of those not intending to downsize felt this way. It is worth noting there was a huge difference in the age groups giving this as a reason, with twice as many aged 75 plus feeling this than people aged 55-64.
The Nuisance Factor: The very nature of moving – packing up the house or exploring the housing market – put people off the idea of downsizing. Like the emotional factor, twice as many over 75s felt this than people aged 55-64.
The Esteem Factor: Some people see downsizing as the same as downgrading or moving into lesser quality accommodation. The prestige and pride they take in their homes will discourage them from considering downsizing as they worry how it might be perceived by others.
The Hospitality Factor: Some older householders value having additional space, seeing it as essential to have a place to accommodate family and guests. In this way, unoccupied bedrooms fit with their aspirations, and they may even want space to engage in other activities and hobbies.
The Cost Factor: The cost of moving also acts as a barrier to downsizing, in contrast to the more personal and emotional reasons mentioned above. 15% of respondents in our survey said the costs associated with the process, such as Stamp Duty and legal fees, outweigh their potential equity gain or encourage them to stay in order to guarantee an inheritance to their children.
The Supply Factor: The UK housing market overall is characterised by a woeful lack of housing supply, in which the issues of affordability, suitability, and quantity all feature. The fact a supply of suitable homes for people wanting to downsize later in life does not actually exist yet, is the biggest brake and often reason people are staying put.
Figure 6: Which, if any, of the following are reasons you don't intend to downsize at any time? - Results from YouGov Survey
So what can be done? Well, we’re using this report to kick start the debate about older people’s housing needs. We have identified three areas for discussion - the three As - adequacy, affordability and awareness.
- Adequacy: Greater efforts need to be made to stimulate the building of homes suitable for downsizing and moving in later life. Retirement housing could be given a separate classification, granting enhanced planning status and giving exemption from a range of planning obligations.
There is also scope to reconsider land value to recognise the social benefit of retirement housing. Allocating land for older people’s housing could reduce the cost of the land and subsequent unit costs of the property. In turn this would make such housing more affordable and help developers expand into areas that would otherwise be unaffordable for the local older population.
- Affordability: The process could be made more affordable by exempting older households from Stamp Duty when they downsize or move into specialist retirement housing. This would encourage more people to move, and the overall effect on the housing market would mean the Treasury would not be at a loss, as younger people moving into these now vacant larger properties would pay increased amount of Stamp Duty, covering any shortfall.
Other measures could include offering financial support for the costs associated with moving or revising the Help to Buy scheme to include ‘later life buyers’ who face an affordability gap.
- Awareness: Advice and guidance should play a crucial role in increasing older households’ awareness of the options and potential benefits from planning a move. As greater resources become available to help older people navigate the new complexities of later life – pensions freedoms and extended working lives for example – it is important the concept of housing receives similar attention to help inform and empower people.
The question around housing in later life should emphasise the opportunities for people to align their living situation with a property best suited to their needs and aspirations. It is not as simple as just needing fewer rooms. In this way, perhaps thinking about ‘rightsizing’ is better than ‘downsizing’. In addition, the argument that under-occupancy by older households is the primary culprit for the housing woes of younger generations also distorts and distracts the debate from developing effective solutions and innovations to improve opportunities across the board.
Shifting the public debate on downsizing in later life is crucial. Our report shows there is substantial unmet demand for downsizing in later life. The core issue is less around older people hoarding housing stock and more about providing greater choice to enable those who want to move to do so. Government policy can also play an important role in this process by widening its focus beyond first-time buyers.
The role of downsizing in later life is about allowing older people to make positive choices to enhance the lives and wellbeing of themselves and their families. The virtuous circle is that it will free up housing stock at the larger end of the market, allowing those wanting to trade up to do so.