However, the first-time buyer faces competition from other potential buyers, including demand from divorced couples and so-called aspirational downsizers. It is true that some people who are living longer may be less inclined to cash in their major asset for something smaller, but for those who choose this route, which not only frees up capital but also puts another house onto the market, the task is not as simple as it seems. For the owners of expensive properties there are fewer hurdles, and nearly half of all sellers downsizing have a property worth over £2m. However, at the other end of the scale, properties worth under £300,000 make up just 10 per cent of all downsizers.
Some companies have spotted the market for building apartments for the wealthier downsizer, but there are costs attached. A typical retirement apartment will be leasehold, so there is ground rent to pay. There is also a service charge, which includes paying for a wealth of items such as water rates, window cleaning, a house manager and laundry facilities. Typically, these work out at around £1,850 a year for a one-bedroom apartment and don't include council tax. At the other end of the scale an assisted living home, which has the added attraction of such facilities as a subsidised restaurant and domestic support services, can see costs rise to over £6,000 a year. These sort of numbers don't present any obvious problems to the 600,000-plus people in the UK who are now property millionaires, 82 per cent of which live in London and the south east, according to online property portal Zoopla (ZPLA).
However, for the average priced home owner, these facilities are not viable. But even moving into a home without any of these facilities may not be financially attractive, and much of the £1,000bn of housing equity owned by retired people will remain locked in without fresh innovations to encourage people to downsize. This is a key point because, faced with few incentives to move, many people will only move when their physical requirements rule out being self-sufficient. Recent evidence suggests that of people aged over 75, nearly half admit that their ability to perform day-to-day tasks is limited.
So, apart from introducing financial incentives to encourage downsizing, there seems to be an increasing need for retirement villages such as those in the US. Helping people to help each other is likely to become an ever increasing necessity, because in terms of overall provision there are around 480,000 nursing and care home beds and just over half a million homes designed for the elderly. That's the equivalent of just 5 per cent of the people aged over 65 against 17 per cent in the US and 13 per cent in Australia. According to research by estate agent Savills (SVS), the projected 2 per cent annual increase in the number of people aged over 65 between 2015 and 2020 will require an extra 11,000 homes a year designed for elderly people just to stand still. However, with replacing ageing housing stock this climbs to 18,000. Taking this a step further, increasing the provision of retirement housing from 4.8 per cent of older people to 10 per cent would require an additional half a million new homes.
Given the already huge imbalance between supply and demand for conventional homes, these targets look to be unachievable. But building on this scale would have a dramatic effect on the number of existing homes coming onto the market. This could ease the upward pressure on prices and allow more first-time buyers into the market.
The big challenge is to fill the gap outside and below the premium sector of the market. When downsizing, the owner of a modest property still faces the cost of stamp duty, agency fees and moving costs. On top of this is the emotional strain and the key question of whether such a move will release a meaningful amount of cash. As an alternative, it seems likely that home reversion schemes and lifetime mortgages will assume a greater presence in the market as a means of releasing cash from a property without actually having to move. Encouraging older people to move will need two components; a financial incentive and somewhere appropriate to move into, both of which will probably need government participation, which seems unlikely. That's a shame because this may be an opportunity to solve two problems at one stroke; housing the elderly in a more appropriate way and putting more houses onto the market.
