The great British housing wealth gap

What is the total value for all houses in the UK? Estimates can vary by the odd trillion or so depending on who’s doing the math, but this summer property portal Zoopla put the figure at £10 trillion.

I imagine that thanks to rising interest rates and a worsening cost of living crisis, this will turn out to be high – at least when adjusted for inflation.

But forgetting the latest headline – which assumes that all homes find buyers at current prices in a market that is highly illiquid – what is more telling is that housing wealth is not equally distributed. Using the England Housing Survey data – which sets a much lower total and strips out all outstanding mortgages – some colleagues and I estimate that home owners over 65 collectively hold 47 per cent of all housing equity. Those under 45 own just 12 percent. No wonder the Bank of Mum and Dad was so popular.

Property wealth may be one of the most striking generational disparities in housing, but it’s not the only one: the housing space has come to the fore since the pandemic hit. Overall, there are enough bedrooms for every resident of England to have one of their own with nearly 10 million to spare — and that’s before we include the 1.1 million empty homes.

Stacked graph of Share of total home equity by owner age (%) showing that older people hold the lion's share of England's housing wealth

The vast majority of these “extra” bedrooms are in homes occupied by older households (those over 65 have 7.4 million of them). Many will be the bedrooms of children who have now left home, although in some cases they may be converted into home offices or some other use aimed at retirees – probably more gyms than model railways these days.

Number of people and bedrooms in occupied dwellings, England, 2019 bar graph showing older people have the most 'extra' bedrooms

It has regularly been suggested that all those extra bedrooms could be used to ease the housing crisis – and the country would certainly benefit from a more liquid housing market with homes that are better spread out. But this is an ethically and politically difficult challenge to resolve. Older people are understandably less willing and less likely to move home than younger cohorts.

Bar chart of proportion of households moving in tax year 2020-21, by age Over-65s least likely to move house

And this trend even applies to renters. More than a third of households over 65 have lived in their current residence for 30 or more years, regardless of tenure. Even incentivizing people to leave their family home is fraught with difficulties, and this should involve any potential inheritors — or children, if you prefer — in the discussion.

The economics of downsizing are also challenging. While seniors hold the vast majority of housing wealth, this partly reflects the size of their generation. Most seniors actually live in median priced homes. Despite owning almost half of all housing equity, the average number of older home owners is £322,000 per household.

With an average flat selling for £295,000 in 2021 and a bungalow for £337,000, there was little financial incentive for people to downsize – even before factoring in moving costs.

However, this may be about to change, thanks to the cost of living crisis.

The country’s aging housing stock and lack of investment have left the UK ill-prepared for rising energy prices. Around one in five homes in England was built more than 100 years ago and period homes typically have a much lower energy efficiency rating than newer homes. More than 80 per cent of homes built before 1919 had a poor rating (grade D or below) on their Energy Performance Certificate, according to the latest English Home Survey. Houses built between the wars – another 15 per cent of total housing – don’t fare much better, with almost three-quarters scoring low.

Bar graph of average net worth by age of owner (£'000) showing that homeowners over 65 have an average of £322,000 in household equity

It is not only older homes that are associated with lower energy efficiency, but also larger households. About 48 percent of people headed by someone between the ages of 16 and 29 had an energy efficiency rating of D or lower. for those over 65, the figure rose to 62 percent. While low-income and younger households may be more exposed to the cost-of-living crisis given less fiscal capacity to cut back on essential goods, older households are far from immune due to the poor energy efficiency of their housing.

Although energy price rises will freeze this autumn, those in homes with the worst energy efficiency ratings will have to pay the most. Next month, the average monthly gas bill for D-rated homes will be 28 per cent more expensive than an average C-rated home, according to analysis by the Resolution Foundation – a nice period home with original features and spare bedrooms could easily become a real burden on the stock-rich and pension-poor. Whether it’s enough to trigger a flood of contraction is unclear, but even if government support eases the pressure, the challenges facing households regardless of income, wealth or age may be big enough to change people’s behaviour.

Column chart Proportion of households in EPC* zones, by age (%) showing that older people are more likely to live in leakier homes

One of the challenges with modernizing and improving the energy efficiency of UK homes is the investment required. Further analysis in the English Housing Survey shows that the majority (95 per cent) of D rated homes where older people live could be improved to a C rating. However, the average cost of improving their home to this standard is estimated to £8,332. And that’s just the average: 22 per cent of households will need to spend between £10,000 and £15,000, while a further 12 per cent would need to spend £15,000 or more.

Given the costs involved, maybe it’s time to use some of that housing equity that older households have been lucky enough to accumulate and reinvest it back into their homes.

Neal Hudson is a housing market analyst and founder of the consultancy BuiltPlace

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