Britain desperately needs more family homes – a tax cut might help encourage older people to downsize

The UK’s current housing crisis manifests in several ways, with inadequate numbers of new homes (especially affordable ones), high house prices and rising rents.

There are major affordability problems especially for young people, and growing inequalities with older and retired homeowners, as they amass substantial additional wealth through rising house prices.

It will take time for building new homes to make a difference because it only adds around 1% to the housing stock each year. And Britain is far from meeting current new build targets anyway.

In 2022-23 only 234,000 new homes were completed in England, including conversions, far short of a generally accepted need to build 340,000 every year (and short too of the government ambitions to build 300,000 each year. Within this total, only 63,000 new affordable homes were built against an accepted target of 145,000 per annum.

Rather than putting all the emphasis on new builds, we also need to make better use of what we have.

One way the Government could help is by assisting older homeowners to “downsize” from their generally large homes, releasing them for younger, growing households. This has two benefits: retired homeowners can secure homes more suited to their needs and younger ones can get the space for growing families (we know many are deferring having children because they lack the space they need).

Data suggests that downsizing by older households could be good for the households concerned.

Almost 30% of all householders who own or rent their home are aged 65 or over – an increase of 20% since 2010. Some 80% of these older householders own their own homes outright. Most importantly, these older owner occupiers live in relatively large homes (on average nearly 110 square metres with 67% having two or more spare bedrooms). Yet over half of them live alone.

What’s more, these homes are often inadequate, with 15% formally non-decent, and over 60% with energy efficiency ratings of D or below (energy performance certificates are given to each property on a rating between A very efficient and G inefficient). The dwellings are also often unsuitable for the occupants because over 40% of older households have a member with some disability.

These statistics suggest that many older households would benefit from downsizing. In doing so they might also be able to release some of the capital that is currently tied up in their home, so that they can have greater financial freedom, for example, to help with health care or to support grandchildren.

So why don’t older households move more often to more suitable accommodation?
In part it is because moving from their home (in which they have lived on average for 25 years) is a big decision and many want only to move if they need and can find specialist accommodation. Finding a suitable new home in an acceptable location takes time and energy. As people get older the process becomes more difficult, and those over 80 rarely contemplate it.

Surveys have shown that getting the right size and type of home was the main reason why this age group contemplated moving – but many simply cannot find what they want.

Stamp duty

A major disincentive to moving lies in the fact that movers will normally have to pay stamp duty land tax on the property they buy. Downsizers therefore cannot buy a home that costs the same as their original house without spending money on the tax, while they can stay put for nothing.

The same surveys show that the prospect of paying stamp duty on the new home is the second most important reason given by older households for not moving. So many continue to live in homes that are highly unsuitable for their needs and impose very significant costs on health and social services. It also lowers the demand for new housing that is suitable for older households while the type and location of what is provided is often very limited.

It is worth noting that the UK is almost alone in the developed world in having so few retirement communities which can both ease the moving process and help keep people healthier and connected. There are examples where older people have moved into town centres in smaller towns which has been successful in making these town centres more viable as well as attractive to older communities. We need more of these initiatives.

The case for putting in place a more coherent policy approach to helping older people move is therefore strong. It would involve exempting downsizers from stamp duty (as the authors have argued in a report) or at the least deferring it until death. It would also mean ensuring there is easily accessible information for those thinking of moving.

Exemptions like this may be seen as additional generosity to older households who, like all homeowners, pay no capital gains tax on selling their own homes. It means that what we suggest needs also to be accompanied by other changes such as ensuring all council taxpayers pay a more progressive tax on the value of their homes by bringing in regular revaluations to keep values up to date.

Of course, exempting downsizers from stamp duty will cost the Treasury in lost tax income, but the subsequent economic activity generated as people move will provide tax income to compensate for the loss of stamp duty. Increasing mobility has a significant benefit to the government as was shown when rates were reduced during COVID.

But changing tax policy to help downsizing also requires changes in planning policy if it is to work. It means specifically allocating sites and having policies in local plans (which set out the development in an area) that provide appropriate locations and types of homes that older downsizers want – and the services they need.

The authors acknowledge the funding they received from The Family Building Society to develop a road map for new housing policy. Professor Crook is a board member of the Royal Town Planning Institute and chairs the Housing Panel of the Construction Industry Council.

The authors acknowledge the funding they received from The Family Building Society to develop a road map for new housing policy.