Generation Rent downsizing shows the housing market is totally broken

It’s the millennials – not the boomers – who are downsizing. And, counter-intuitively, more financial breaks for older owners could be the answer

Around 12 per cent of those aged 18 to 34 are looking for a smaller place this year (Getty)

Young people in the UK are four times more likely to be planning to downsize than those over the age of 55 – and it’s much more likely to be about money than about giving up unnecessary space.

People aged between 18 and 34 are more likely to move to smaller homes than larger ones, according to research from Hargreaves Lansdown. This age group is usually expected to be heading up the property ladder.

While 9 per cent of people in that age group expect to trade up this year, whether renting or buying, 12 per cent say they will be downsizing.

“Not only does this mean an insecure and peripatetic lifestyle, but as rents rise, tenants may be forced to keep downsizing in order to keep a lid on costs – especially if they’re simultaneously trying to save for a home themselves,” says Sarah Coles, personal finance analyst at Hargreaves Lansdown.

“When they eventually buy, they may have to downsize again in some areas to get on to the property ladder, but the sooner people can save and buy a property of their own, the sooner they can take control.”

The numbers say it all

Analysis carried out by the Resolution Foundation shows that in England there are just 825 homes for every 1,000 families in England.

The foundation argues that the rise in shared households, such as when young professionals live together or adults live with their parents, has happened out of necessity rather than choice, as there simply are not enough properties to go around.

The Royal Institution of Chartered Surveyors (RICS) recently reported that tenant demand continued to rise for a third successive month in March, while new landlord instructions slipped further.

Meanwhile, data from the Office for National Statistics shows that rental prices paid by tenants in the UK rose by 1.2 per cent in the 12 months to March 2019. Between January 2015 and March 2019, private rental prices in the UK increased by 7.3 per cent.

Last year, RICS warned that small scale landlords were pulling out of the market and reducing the supply of rental property. That could mean rents climb by as much as 15 per cent by 2023, it warned.

If that analysis is shown to be correct then even more young renters and aspiring homeowners may find they need to downsize either to save a deposit or simply afford their rent.

A report from the centre-right think tank Policy Exchange last year revealed that there are 1.1 million homes in England with two or more spare bedrooms where a single person aged over 65 lives.

So why aren’t more of this age group downsizing instead?

Barriers to downsizing

If the cost of homes is one reason Generation Rent are so likely to downsize, the cost of moving is a barrier to many baby boomers.

Earlier this month, Saga revealed that a quarter of older, would-be downsizers are put off moving because of barriers such as stamp duty.

Its research suggested that 45 per cent of those over 50 would consider downsizing as an option to help fund their retirement. That’s a substantial number of would-be downsizers – and yet younger people are still more likely to do it.

And when over-50s do go smaller, they’re not always pleased with the results. A report this week from financial services provider OneFamily showed that 20 per cent of over-60s who did downsize were disappointed by how much money they freed up by doing so.

In fact, the research showed that the average older downsizer ends up with just under £106,000 from the sale of their property, which is £28,650 less than they expected. They’re likely to tell their friends what a disappointment that was, reducing the attraction of downsizing for retired people.

But then, they are in a position to downsize in order to free up wealth, a very different situation from younger renters who do so to stretch their monthly income further.

Jeff Bromage, managing director of Saga Money, thinks that a stamp duty break for older downsizers might help them move, increasing liquidity in the market. A stamp duty holiday for first-time buyers has been in place since the 2017 Autumn Budget.

Mr Bromage said: “It was great that the government acted to help first time buyers, but this is only part of the solution. More needs to be done to help free up more family homes to the market in order to continue the supply of first homes.”