Saturday, November 7, 2015

Are older people caught in a property trap?


I was struck by these lines in an article in the Telegraph in London, UK, titled 'Psychological barriers stop old people from downsizing, says housing minister'.

Older people have to overcome a “psychological barrier” which stops them downsizing to a smaller home, the housing and planning minister has said.

Brandon Lewis said he wanted property companies to build more attractive bungalows which would encourage pensioners to move out of their empty family homes.

. . .

Research in 2011 estimated that 25 million bedrooms in England were empty, largely because elderly couples do not move out of family homes to smaller properties.

At the same time, young families are increasingly being squeezed into small homes and overcrowded flats as a result of the country’s high property prices.

There's more at the link.

I'm not so sure Mr. Lewis has it right.  I think of far greater importance than so-called 'psychological barriers' is the reality that very few people - younger or older - are earning enough money to be able to afford to buy a larger house.  The recession has left many working in jobs that are relatively poorly paid.  Family incomes are often considerably lower than they were even a decade ago.  On the other hand, property prices have increased steadily, fueled by so-called 'quantitative easing' (a.k.a. 'printing money') and ZIRP that has made piles of money available to corporate investors in the housing market.  Bloomberg went so far as to report in 2013, 'Families Blocked by Investors From Buying U.S. Homes'.  The flood of buy-to-let investments has driven house prices higher than many families can afford.

What this means is that Mr. and Mrs. Older American (or Briton) are sitting in a house that's valued, on paper at least, at a very high figure - too high for younger Americans or Britons to afford on their reduced incomes.  Even if older families wanted to downsize, if they can't sell their larger homes, they can't free up the money they have invested in them in order to buy something smaller.  That's not a psychological issue - it's a classic catch-22 situation.

I think the housing market is headed for a steep decline, probably equalling (if not surpassing) in intensity that which we saw in 2007/08.  I think present prices are unsustainable, and not supported by any underlying economic reality.  A property is ultimately worth only what someone's willing to pay for it . . . and relatively few people are prepared to pay the inflated prices currently being demanded.  I suppose we'll have to wait and see what happens.

Peter

12 comments:

BobF said...

In our case, when we made our last move we were thinking of space for visiting sons and their families. In the end, however, we downsized, maybe a little too much, realizing that sons and grandkids 800 miles away are not going to visit often enough to justify the cost and upkeep effort of a large place. In the end we feel we made the correct decision. The bonus is that by purchasing a smaller place we were able to burn the mortgage fairly quickly.

sth_txs said...

I guess the good news for those in the article across the water is that the local government did not tax them to death and make it where it is cheaper to rent than have a paid off property.

Old NFO said...

I think your idea is probably closer to the truth... and prices are stupidly high. When I sold my house in SC this year, I was told if I'd sold in 2007, I could have gotten $70K more for it. I pointed out to the agent that it wasn't 2007, and the reality was that I wanted to SELL the house, not have it sit on the market for a year. The price I set had the first offer in three days... Nuff said...

Graybeard said...

Maybe a I'm a paranoid, old, conservative blogger (wait...), but I detect the stench of "blame everything on the baby boomers" here.

Did you notice that? Because we older people with paid off houses have turned ex-bedrooms into other uses, we have a "psychological barrier keeping us from downsizing"? Bull Crap!

This guy has no business telling anyone of any age what they can do with their house. It's none of his business if I decide I want to live in a house where I re-purpose one of the bedrooms into a ham shack, computer room or office. Likewise, it's none of his business if someone decides to turn the former bedroom into a showplace for their doll collection. Trying to force people out of their house so that someone else can buy it is disgusting big government/social justice warrior nonsense.

Yes, housing prices are insane, and that is completely, 100%, the desired effect of all the ZIRP and QE. When a mortgage note is written for X dollars, the banks must collect X. If the house depreciates and people walk away (which is wrong), the bank loses dollars and central banks are there to protect the banks. The central banks have been working like crazy to prop up housing prices and the stock markets. They WANT inflation, which punishes savers - most likely the old people this guy is trying to get rid of.

You can only conclude that the central banks want to get rid of the savers in society; they've all but declared war on us.


Anonymous said...

I agree with OldNFO's comments above. I sold my house recently, on the market 3 days. Got my asking price and negotiated a lower commission to boot. It's good to have the cash in hand. I'm in no hurry to lock into a major financial obligation with the job market the way it is even though mine is quite stable).

Lucy and Tigers Mom said...

Greybeard+

Douglas2 said...

We must bear in mind that the quote from the housing-minister is in the UK context, and even with a
Conservative-Party government in power the subtext is that:
a. It is the responsibility of the government to "provide" housing for families (else why make it a cabinet position?)
b. someone with more-than-one home or unoccupied bedrooms is in some sense "hoarding" an asset that really belongs to society, and wouldn't it be nice if we could shift them out.

In the council estate where I lived the social housing officials had what I thought was a quite humane policy of letting people stay in houses that they had rented for a long-time even after their children had grown up and moved out. This kept them in the same neighborhood as longstanding friends, where they were familiar with nearby shopping, and allowed them to keep taking advantage of improvements they had added to the properties such as fruit trees and vegetable beds. You can be sure that as soon as there was a voluntary vacancy or death they did a blitz renovation and moved in one of the larger families from the "social housing required" list, often within a week. In this case the houses really were the property of the government.

The UK doesn't have the same easy-money mortgage bubble as the USA, and the high prices are quite clearly linked there to the "planning" laws and policies that heavily restrict the amount of land available for housing or redevelopment into higher density housing.

Rolf said...

Everywhere else in existence, inflating and rising prices of essentials for living are seen as a bad thing to be avoided; it's because people see houses as investments, not shelter, that skews things.

There are also the tax consequences to consider when you downsize. The tax laws here in the US, depending on specific situation you are in, can be quite punitive if you sell a house and either don't buy another one, or buy a house of lower value (note I didn't say "smaller"). It can create a strong dis-incentive to sell and downsize.

A bigger problem is Section 8 subsidized housing. Once a person is approved and in, there is a very strong incentive to never move or downsize, even long after the kids are grown and gone. Eliminating housing subsidies would free up a LOT of bedrooms and return the market to something much closer to a market-driving pricing structure.

Gorges Smythe said...

We have to remember that the ultimate goal is to remove all property from the hands of "common" people.

Unknown said...

it is a signal, part of the ongoing push by those in power to turn people against those who are wealthier.

they are in effect saying those old people need to get out of large homes for the good of the collective.

Stu Garfath, OZ. said...

To Unknown, at 7:31 PM.
My Wife and I are baby boomers, we have worked the hard yards, definitely never high on the hog, for the last 44 years.
We now own our final house/car, (nothing 'flash'), no mortgage, a bank balance quite adequate enough to live off so that we will not have to depend on the public purse for an acceptable quality of retired life, we have helped our two offspring financially, so they never needed welfare, rest assured, both of them are paying us back, -no free rides in this family!.
My point is, I have the impression that there is a percentage of todays society that has lived, or only knows, an entitlement existence, who view what we boomers have, as 'theirs', it's their turn, to have what they perceive as our cheaply gained affluent (by their standards) position through little or no effort, by similarly applying their poor or non-existent work ethic as their yardstick of reasoning?.
The part played by the media and many politicians over the decades is not to be dismissed either, their actions, for whatever many and varied reasons they be, have surely contributed to the status quo.
What's next, Soylent Green?.








Will said...

One of the problems is that "the greatest generation" was the last one in Western Society to have a large family of kids. The high taxes imposed on people since the mid 60's or so, has made it expensive to raise large numbers of children, and encouraged the stay-at-home parent to join the workforce to compensate. This also tends to limit children. This high tax climate of socialism is what kills countries eventually, by limiting the birth rate. Add in abortion and birth control pills, for further nails in the coffin.