“The Hoarding of Housing” – an Intergenerational Time-bomb

I missed the media coverage at its publication a year ago but having now read this report by the intergenerational foundation, I felt I must share the headline facts with ALTER website visitors. I hope our Housing Policy Working Group read it when they were preparing the motion we passed last month in Brighton.

You can get the 'full monty' - and several more reports by "The IF" - from their own excellent site. But it merits an update of our own leaflets on Young People and on Housing.

There are three themes here:

A. The mis-match between housing need and actual allocation in the supposed 'market sector'. The 'family home' is increasingly not occupied by anyone actually raising a family. Furthermore, by the time a family with children can afford to buy a home with enough bedrooms for the kids to sleep in, lenders except 'the bank of mum and dad' (BMD) will soon turn them down for a mortgage. First-time buyers without BMD are now aged 37 on average: a typical 25-year loan will leave little time left, after its repayment, to save for that pension before retirement comes!

1. More than a third of total English housing stock is under-occupied, i.e. there is more than one spare bedroom. The figure was 1/5 in 1971 - but most of the rise is since 2003. This is at a time when the Government is going to impose a 'bedroom tax' on social housing tenants, by basing housing benefit on only the exact number of bedrooms a household needs. But it is ….
2. Only in the over-65 age-group that owner-occupation increased since 1991. Between 1981 and 2009, the proportion of people aged over 65 who were owner-occupiers - almost all of them under-occupying homes that families desperately need - rose from under half to ¾: an increase of 53%. And they are rattling around, in style!
3. There will be 4 million single-person pensioner households by 2026, a rise of 136% in 45 years. A fifth of all pensioner households will have a second home as well!
4. Households living in the private rented sector are set to double between 2007 and 2020. The sector now accounts for 2/3 of all new households. As Housing Minister Greg Clark has said, referring to lack of security of tenure: "The private rented sector is destroying family life".

B. The Link with a growing Wealth Gap. It is today's pensioners who mainly benefited from right-to-buy in the 80s, since when we have seen a dramatic fall in rates of new build, easy lending, consequent demand-led price rises, and a huge growth in the proportion of household wealth held as 'bricks and mortar' (actually it is land value).

5. Since 1980 (when it roughly equalled GDP), total home-owner household equity has almost doubled in real terms. In 2007, it had reached 185% of GDP and has only fallen back slightly since the global financial crisis.
6. As a proportion of net personal wealth, dwellings have increased from 18% in 1960 to about 60%. By 1990, the figure was 50% and it rose substantially in the following 17 years. The increase in personal wealth held in this form has been far faster than the increase in earnings: an owner-occupier household has generally become 'richer' every day by not working than by working! No so for renters.
7. Housing wealth of older home-owners will continue to grow strongly: by 40% by 2030. The pensions industry relies on this - for now. But it is unsustainable, when one looks at the plight of younger families without home-owning parents.

C. The Inter-generational Debt Gap. While housing wealth grew in the past 20 years, it was exceeded by the household debt accumulated over the same period - mostly secured against owner-occupied homes and fuelling house price rises. As a Bank of England economist has put it: "The money borrowed by young families ended up in the bank accounts of older people." Increasingly though, the personal debt of younger families unable to buy a home will not be secured.

8. More than ¾ of household debt in 2009 was secured on dwellings. Average household debt - and the proportion secured on dwellings - is far higher in Britain than any other major economy. Almost all the increase since 2002 has been mortgage related.
9. Mortgage lending tripled from 1999 to 2007. The household sector became a net borrower - with younger households accounting for almost all the increase.
10. Mortgage repayment by working families is limiting their ability to save for retirement. Having rented their homes for twice as long as their parents had to, today's parents (who are also likely to have incurred student debts and have many credit cards) have much less residual lifetime earnings from which to save.
11. Greater longevity means that inherited housing wealth comes too late to help most younger families. The children of those who inherit are likely to have left home. As with Japan already, today's children are quite likely to inherit their parents' mortgage debt, not a lump sum from sale of the family home! This will undermine the entire mortgage and pensions businesses.

There are many reasons why older people 'hoard' their over-sized homes. Yet the British do it more than others, including the Americans - where probability of moving increases as people pass age 60 (here it decreases). Memories, grand-childrens' visits, staying near friends, keeping a garden - all militate against down-sizing. But the facts show how unsustainable and damaging to the national economy and society this is likely to be.

What are the solutions?

IF includes Land Value Taxation as one answer: giving a strong financial incentive for all households to minimise under-occupation and cease to treat their home as a principle store of wealth.

Other policies would help too, in the short term and without LVT. Many also relate to tax:-

• Ending single persons' council tax discount
• Exempting down-sizing home-buyers from StampDutyLandTax
• Moving from household density (which leads to small homes) to bedroom density (which would encourage more larger new homes) as a planning guideline or target
• Ending Capital Gains Tax exemption for principal residences, as well as for secondary residences. Alternatively treat capital value accrual of any residence as taxable income (rather like Schedule A income tax).
• Withdrawal of some universal benefits for households in high-value homes.
• Getting tough with lenders. Homeowners disproportionately benefit from the 'moral hazard' of bailing out the banks.