Most younger people in the UK will probably tell you that one of the biggest differences between themselves and their parents or grandparents’ generations is the possibility of owning a home.
70% of those aged 65 and over own their home outright in the UK. On the flip side, almost half of 16-34s are renting privately. These figures are a stark reminder of this generational divide.
Much of the current national debate around housing is, understandably, focused on younger demographics who are facing the greatest housing-related challenges. Attention tends to centre on the consequences of rising interest rates for mortgage holders, aspiring first-time buyers and, to a lesser extent, young renters.
The impact of higher rates on those looking to move homes for the last time is less frequently discussed. But while the older population are more commonly in the advantageous position of owning their homes outright, they often rely on selling these same properties to pay for retirement living – a residential option that doesn’t usually come cheap.
The number of ‘silver millionaires’ in the UK has almost quadrupled over the last decade. This is in no small part down to the concentration of housing wealth among older generations. But while they may be an asset-rich demographic, a large portion of pensioners are reliant on house sales to fund retirement.
These sales have the added benefit of freeing up properties for younger buyers, as well as allowing those later on in life to enjoy the benefits of specialist retirement communities. A staggering 9 million households aged over 65 are living with surplus bedrooms. While young families struggle to buy, older generations are occupying larger spaces than they often need or want.
But amidst a squeezed market and falling house prices, current circumstances are far from ideal for those looking to sell up, fund a move into a retirement community and free up housing stock that’s more suitable for larger families.
News in August that declining house prices marked the largest yearly decline since 2009 will spell pain for older people looking to sell their property to cover the cost of retirement schemes. Understandably, the prospect of selling one’s home for less than you anticipated is unappealing to most homeowners – but particularly if you’re looking to move comfortably into a retirement community. Falling house prices and a market grinding to a steady halt means fewer buyers and less cash for your assets. Proceeds from house sales won’t stretch as far.
Yet it may become a bit of a catch-22. Some older homeowners will choose to hold out for improved conditions, hoping for more cash for their assets, further pinching the market.
And the issue extends beyond individual homeowners. As an asset class, retirement living is maturing. In the past decade, institutional investors have committed capital to the sector, looking to capitalise on the fundamental growth driver of compelling demographic tailwinds.
We are living for longer in the UK. By 2030, the number of over 65s is expected to be more than 15 million – an increase of 300,000 people in this age category per year. We will need more ‘age-appropriate’ houses as our population ages.
But a short-term slump in house sales runs the risk of artificially suppressing demand for specialist retirement living schemes as older homeowners refrain from selling, and subsequently moving, in the hope of a market uptick.
Developers and institutional investors should be wary that a short-term delay in retirees moving into specialist later living communities does not reflect a fall-off in fundamental demand. It’s critical that we not allow an unrepresentative dip in demand to create a shortage in the supply of accommodation for our ageing population in years to come.
That’s a particular risk, because there are obviously attractive asset classes where investors might choose to otherwise focus their attention and money, such as Build-to-Rent, where demand remains consistently high.
But investors and developers should continue to earmark capital and resource for new retirement living schemes too – and perhaps even consider opportunities in the intersection of BtR and retirement living, alongside the usual Build-to-Sell later-living model.
Only time will tell how these circumstances play out, but the fact remains that our population is getting older. Of course, those with significant housing wealth are undoubtedly in a fortunate position. However, the UK’s hampered housing market risks prolonging essential property sales from older homeowners wishing to make the move into more suitable housing and freeing up supply for younger people and families in a position to buy.
If this discourages investors from funding new retirement schemes, we could be confronted with an added layer of complexity in the already overflowing melting pot of challenges facing our housing market.