Much of the world is seeing a demographic shift towards an older population, which brings many policy challenges in areas such as health and education. A recent report from Cass Business School explores how an aging society also impacts the housing market.
There are precious few countries around the world where housing isn’t a hot topic of debate as generally rising populations prompt concerns about shortages, or at least, increasingly expensive housing. As well as rising populations however, the report also highlights changes in household size, with just 2.36 people per dwelling in the UK today, down from 2.48 in 1980. If the UK could return to 1980 levels it would free up an enormous 1.3 million more homes.
Additionally, the authors believe it is not just a shortage of numbers that is a problem, but also of the right kind of houses. They argue that older people are stuck in houses that no longer suit them as their children have left home, but a lack of affordable alternatives leaves them effectively stuck.
Last-time buyers
They reveal that policy makers tend to focus almost exclusively on first-time buyers to get people onto the housing ladder, but a better strategy would be instead to focus on ‘last-time buyers’, to encourage downsizing among the elderly.
The authors utilize the Dwelling Index, which aims to combine both demographic information with data on household composition and housing supply to not only analyze the past, but also present and future housing needs. The Index predicts significant rises in both elderly couples living alone in their 60s, and then one-person households in their 70s and 80s.
What’s more, as the baby boomer generation begin to pass on their homes to children, they believe house prices will begin to fall in the 2020s. Whilst this may alleviate some of the supply-side issues currently evident in the housing market, the authors believe it will do nothing to help either first-time buyers or those older people who are stuck in a home that’s too big for them.
Financial innovation
Such is the size of any housing investment, financial services are a crucial partner in any housing industry. The authors highlight areas such as equity release, which have already grown to around £4bn per year in the UK, but also the growth in property-backed lending to older people.
The authors also believe that the possibility for this housing equity to help cover the cost of caring for people as they age represents a big opportunity. They believe that payment for these policies could be deferred until the property is sold. This would help provide peace of mind to the inhabitants, which in turn would help with inheritance planning.
“The UK population is growing and also rapidly ageing thanks to improvements in life expectancy. By taking a long view, the research clearly shows the origins of today’s housing crisis and what can be done to tackle it. A better alignment of the housing stock with housing needs, along with improved financial incentives, would significantly alleviate housing pressures to the benefit of all,” the authors say.
