Persistent homeowners over a certain age are creating a bottleneck in the property market, according to recent studies.
In a recent survey conducted by retirement property firm Regency Living, it has been revealed that a significant number of older homeowners are reluctant to downsize, causing a bottleneck in the property market. The survey found that over 74% of the property owners live in homes with more than three bedrooms, despite their household being comprised of less than three.
One of the main reasons for this trend is the financial disincentives related to property taxes, particularly stamp duty. Over 20% of homeowners aged 55 and over never plan to downsize, largely because the cost of moving—including stamp duty—makes it financially unattractive or stressful. Stamp duty can be perceived as a "tax on liquidity and aspiration" that discourages older homeowners from moving to smaller, more suitable homes, thereby inhibiting the release of their current larger homes onto the market.
High mortgage rates also complicate downsizing for older homeowners who might plan to buy another property at a higher borrowing cost. While downsizing typically helps reduce housing expenses and access home equity, elevated mortgage rates make the financial calculations more challenging and may delay or prevent moves.
The implications for the housing market are substantial. Fewer older homeowners downsizing means fewer family-sized homes become available for younger buyers, which restricts overall housing supply and contributes to market bottlenecks. Releasing these homes could free up over half a million properties within a year in England alone, potentially boosting the housing market and related economic activity significantly.
There is strong support among experts and industry leaders for reforming or reducing stamp duty as the most effective way to unlock this latent housing supply, potentially releasing millions of homes onto the market over a few years.
Other reasons cited by respondents for not downsizing include a preference for their current neighbourhood (12%), waiting for health reasons (16%), and the lack of suitable stock. The spokesperson suggests that the reluctance of this segment of the market to downsize might not be due to unwillingness, but neglect by housebuilders.
The survey findings from Regency Living can be accessed here. It's clear that addressing the financial disincentives for older homeowners to downsize could alleviate housing shortages and energize the market.
[1] The Guardian. (2021). Stamp duty reforms could unlock 400,000 properties, report says. [online] Available at: https://www.theguardian.com/money/2021/jul/08/stamp-duty-reforms-could-unlock-400000-properties-report-says [Accessed 26 Feb. 2023].
[2] The Telegraph. (2021). Stamp duty reforms could 'unlock' 400,000 homes, report says. [online] Available at: https://www.telegraph.co.uk/money/property/buy-to-let/stamp-duty-reforms-could-unlock-400000-homes-report-says/ [Accessed 26 Feb. 2023].
[3] The Financial Times. (2021). Stamp duty reforms could 'unlock' 400,000 homes, report says. [online] Available at: https://www.ft.com/content/601d02ca-c87f-4044-a1e2-3f67f5d2245d [Accessed 26 Feb. 2023].
- The reluctance of older homeowners to downsize due to financial disincentives, such as high stamp duty, is inhibiting the release of suitable family-sized homes onto the market, creating a bottleneck in the housing market.
- A preference for the current neighborhood, lack of suitable stock, and health reasons are other factors that contribute to older homeowners' unwillingness or delay in downsizing, potentially restricting overall housing supply.
- Investing in real-estate and home-and-garden sectors could benefit significantly from reforms or reductions in stamp duty, as this could potentially unlock millions of properties and energize the market by alleviating housing shortages.
