Source: ONS
Unlocking the equity built up by the over-65s and making more efficient use of housing stock are key opportunities.
The country is ageing and so the structure of the UK’s population growth over the next 30 years looks set to be very different from that of the last 30. Recent population growth has been driven by the expansion of working-age people, contributing 72% of total growth.
Looking ahead, and although actual growth will be as a result of new births and younger migrants coming to the UK, the effects of the 20th-century baby boom mean that the biggest increase by age group will be among those aged 65 and over.
Our ageing society presents massive challenges for the wider economy. The dependency ratio (number of workers per children and retired people) will continue to decline unless retirement age is pushed back further. This means a proportionately smaller number of tax contributors will be supporting more public-spending dependents. In a period when public services are already under pressure in the desire to reduce the deficit, they will come under further stress as they need to support and help more people.
FIGURE 1Population growth by age
FIGURE 2Representative profiles for tax and public services spending
Source: Office for Budget Responsibility
Under-occupiers
The UK is not alone in facing this challenge. Many developed countries are in a similar position, with Japan and Germany the most obvious examples. Other more recently developing countries are also rapidly facing the same challenge. For example, the World Bank estimates that China hit its peak workforce as a percentage of total population in 2010 and so faces its own issues in supporting an ageing society.
FIGURE 3Working age population as % of total
Source: World Bank
The effects from our ageing society are only just beginning to play out on the wider economy but the effects on the housing market are more apparent. Income-busting house price growth during the 1990s and 2000s followed by the lasting effects of the credit crunch since 2008 has left us with a market that is deeply unequal.
Many of those fortunate enough to have been born in earlier generations and own their own home have benefited from price growth and current low mortgage rates. Home ownership among the over-65s is 78% compared to 64% across all age groups. They will also typically own their home outright with no mortgage and are sitting on over £1 trillion worth of housing equity.
Older households also tend to have more housing space than they need on a day-to-day basis. The English Housing Survey indicates that around three million (53%) households aged 65 and over are under-occupying their home with more space than they normally need.
FIGURE 4Housing equity and under-occupation by age
Source: Savills Research
Meanwhile, current first-time buyers need deposits equal to 76% of their income (in London it is 126%) and so it is no surprise that many of the young people who do manage to buy do so with help from the bank of mum and dad, and increasingly grandma and grandpa.
The challenge will be unlocking the equity and making more efficient use of the housing stock. Although older households are sitting on a large amount of wealth, without the ability to sell or borrow against it, housing equity becomes just a number on a piece of paper. With housing market transactions improving but still below pre credit-crunch levels and mortgage market lending still relatively tight for both older borrowers and first-time buyers, opportunities to unlock this equity will remain constrained without further innovation.
Changing attitudes
It would be politically, socially and ethically wrong to force people from their homes. However, the generation now approaching retirement will be more accustomed to moving up the housing ladder rather than living in just one family home. Attitudes are changing with surveys indicating there is a frustrated and growing desire to move in older age, albeit at lower rates than younger age groups.
Without homes that meet changing lifestyle needs or financial incentives, such as stamp duty holidays for downsizers, it appears likely that we will see the majority of people staying in the family home for as long as possible. Typically until faced with a pressing health or social reason (e.g. bereavement, safety or health scare).
The twin challenges of an ageing population and inequality present some significant headwinds for the country in the years ahead. The retirement housing sector should be well placed to turn these challenges into opportunities. We are now seeing increased activity in the sector with more participants and a wider range of products and locations.
However, we are yet to see a product that truly breaks down the British apathy towards retirement living and at a price that is accessible to the majority of the population.
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