Are last-time buyers the answer to the housing crisis?

Any drive to ease the UK’s housing issues by targeting so-called “last-time buyers” faces significant challenges, according to housing experts.

Legal & General published research last week which described the last-time buyers market as critical to solving the UK’s housing problems.

A joint study by L&G and the Centre for Economics and Business Research found there are 3.3 million homeowners in the UK aged over 55 looking to downsize in future sitting on a total of 7.7 million spare bedrooms.

The total is equivalent to 2.6 million family homes, L&G says, or 10 years of housing supply under the current Government targets.

“With 11.4 million homeowners aged 55 or over, older buyers could hold the key to alleviating the challenges that others are facing across the property chain by freeing up houses for growing families,” L&G said.

Capital Economics property economist Matthew Pointon says the conclusion that existing homes need to be better utilised is difficult to argue with.

We have always been skeptical about the housing shortage argument. If you look at the top level numbers it’s hard to find evidence of a housing shortage on those kinds of figures, so it does look like the main problem is the misuse of existing stock,” he says.

“So anything that can help any of those generations to downsize will certainly be of help.”

As well as calling on the Government to better focus on freeing up existing housing stock, L&G proposes reforms, including stamp duty for people over a certain age.

However, Pointon suggests a more effective policy might be to launch an increase to council tax similar to the existing “bedroom tax”, which targets benefit claimants living in properties deemed to have spare bedrooms.

“Tax is a big part of the problem in the UK, and part of the reason we have this housing crisis is because taxation is so favourable that people want to hold on to their homes,” he says.

“At the moment you either need to build a lot more homes than are actually required to enable people to stay in houses that are much too big for them, or you need to incentive people to move.

“I would like to see a bit more discussion on the council tax side, and maybe increasing that. It would be politically difficult but it makes sense on the economics side of things.”

However, Robert Sinclair, chief executive of the Association of Mortgage Intermediaries, says policymakers should focus on incentivising homeowners to downsize, rather than hitting people with penalties.

“You either use the carrot or the stick to do this. The stick is the bedroom tax and the carrot is incentives to get people to downsize, but I have always preferred positive reinforcement to negative.”

L&G’s study says the provision of retirement housing is currently concentrated amongst affordable housing providers and a small number of premium operators. So instead of hiking taxes, Sinclair suggests removing costs for builders looking to create specific housing for those approaching, or entering, retirement.

“You can have retirement communities where people can move but the infrastructure around those homes tends to be relatively expensive, so tax breaks to allow people to do this have got some sense, but it much would depend on exactly what those incentives are,” he says.

Hometrack research and insight director Richard Donnell agrees that any reforms should focus on increasing the supply of appropriate homes, and disputes whether suggestions such as stamp duty reform will be sufficient to overcome significant inertia issues.

“What we should do is get more specific retirement housing built,” Donnell says.

“Builders are starting to look at this market because a lot of these buyers won’t have affordability problems and they may even be paying with cash.

“But that’s quite a demanding and savvy client, and the more you are reliant on discretionary down trades, the more you are going to be reliant on what they want.”

Donnell adds that any initiatives must recognise the scale of the challenge, and that across the market fewer homes are being turned over in all sectors.

L&G’s figures state that 47 per cent of homeowners aged 55 or over have no plans to move, with just over a third saying their home is already small enough, while 21 per cent say they do not  want to give up their family home.

While 32 per cent of homeowners over 55 told L&G they had already considered moving to a smaller property in the last five years, just 7 per cent said they had actually done so.

“The biggest issue you have to tackle is that these people are settled,” Donnell says.

“There’s always a reluctance to go somewhere smaller, and then it’s a question of how much money can they take out of the deal. Is saving on stamp duty going to make that difference?

“I think it’s sort of the icing on the cake, rather than enough to make a market happen.”