Think tank says that just building more homes is not the solution to the housing crisis

More houses need to be built in the UK to relieve the pressure on first time buyers, but this will not address the growing issue of under-occupancy and the lack of affordability caused by population increases and ageing, according to a new report.

The analysis by the Cass Business School for think tank the Centre for the Study of Financial Innovation (CSFI) explains that while the UK’s housing stock is, on paper at least, sufficient to meet current housing needs, there are a large number of second and empty homes.

Using a new concept called the Dwelling Index, the research tracks the big increase under way in the number of older people living alone or in couples. It says that this trend is set to continue for the next two decades and with it the problem of under-occupancy and vacant housing.

It points out that the implications are hugely significant in terms of the UK’s capacity to meet current and future housing needs. Between 2020 and 2030, the number of households is set to rise by around two million to 30.7 million, but 35% of the increase will comprise older households and, of these, 61% will be one person.

The outlook is similar for 2030 to 2040, with further growth of 1.6 million in the number of households to 32.3 million with 38% of the additions forecast to be older households, and 67% of those one person. By contrast, family households are expected to grow by only 1.6% from 6.4 million to 6.5 million between 2020 and 2030 and by 0.5% between 2030 and 2040.

To understand the extent of the mismatch, the analysis compared the type of accommodation available with housing needs, using the Dwelling Index and Government space standards. It found that while 60% of homes have three or more bedrooms, there would be a much closer fit with dwelling needs if only 46% had three. As the population ages, the degree of misalignment will increase, aggravating wealth inequalities between generations.

‘The case for downsizing strengthens as people age, but current policies are having a deterrent effect due to high transaction costs and a lack of suitable properties to downsize into. This area needs urgent attention, whether it is building more attractive age-friendly and suitably sized apartments, or more retirement communities,’ the report says.

The research also predicts a fall in prices in the 2020s due to demographic factors. The most important of these are that baby boomers will start to die out and demand for housing from people of working age will level out. Both will help younger buyers, especially if accompanied by faster rises in average earnings. In the meantime, more new homes are needed, but to avoid a treadmill of ever increasing housing stock coupled with falling occupancy, other measures are required.

It suggests that policies need to be closely aligned so that more efficient use is made of the housing stock. ‘This means building more affordable houses for ownership and rent. House builders and local authorities hold the key to investment decisions, with reform of the planning process playing an integral part,’ the report points out.

‘Central Government has the power to reform the planning system and reduce transaction costs, notably taxes, in a targeted way to encourage downsizing,’ it says, adding that currently housing policy is piecemeal and too focused on first time buyers, addressing symptoms rather than the underlying causes.

‘We recommend that attention should also focus on last time buyers to ensure that downsizing plays a bigger role in the solution and the role of financial services is crucial. The industry controls mortgage lending, including equity release, and can also provide housing backed insurance to cover future care costs,’ the report adds.

Reacting to the report, Nick Sanderson, chief executive officer of the Audley Group, said that the Government must prioritise incentives and schemes to support the building of specialist retirement properties and encourage downsizing.

‘The onus shouldn’t sit solely with the Government. The whole housing sector, including mortgage lenders and homebuilders, must be more innovative to support older home buyers. If done correctly the entire country will reap the societal and economic benefits,’ he said.