Mention the term ‘baby boomer’ and it conjures various responses, ranging from a blank, jargon-weary expression to vociferous fury at a generation now alleged by some to be blocking economic progress by sitting on generational wealth in homes ‘over-sized’ for their needs.
‘We’ve earned it!’ might be a reasonable ‘boomer’ response. Yet even they might pull back from demanding a major concession from the Treasury. However, such a thing just might be what’s needed to address the issue diagnosed by the boomers’ harshest critics – the sclerotic turnover of homes in later life. If we really want to get the property market moving, could it be time for the Chancellor to throw the boomers a bone, in the form of a Stamp Duty exemption when downsizing?
At a time of a cost-of-living crisis, exacerbated for many by paying rent due to the inability to get onto the property ladder, a move likely to benefit the already well-off may seem political insanity. But is it sound economics? One of the main reasons young families can’t get onto the property ladder is the extent of demand for family homes. In a situation of constrained supply with often a dozen bidders for the same property, the pressure on price is one-way only – up!
A major driver of constrained supply is boomers who do not need all the space in their now ‘empty nest’, but see no good reason to move. For those who might consider the benefits of amenities and culture closer to a city centre, the barrier presented by Stamp Duty becomes significant. Why pay tens of thousands of pounds for the upheaval of moving?
If we believe increased downsizing would free up supply for younger buyers, we must recognise that present incentives are stacked roof-high in the opposite direction. Indeed, one 2017 report on described stamp duty as ‘suffocating’ the housing market by stopping older people moving into age-appropriate housing, and preventing younger people getting on the housing ladder.
As things stand, even baby boomers’ children would think twice about encouraging their parents to downsize (if they could even brave †he conversation), when reflecting on their future inheritance taking a £50k+ dent due to Stamp Duty. After all, their own children probably don’t complain (quite the opposite!) about granny still being in granny’s house, since it’s full of treats and sleeps them all at Christmas. Also, boomers’ offspring will likely will see the proceeds or even have the house gifted to them by particularly savvy Inheritance Tax planners, meaning the status quo has a good deal of attraction.
All of which means more needs to be done if we want real change in a housing market which currently price out young families.
Isn’t it time, then, for the Chancellor to consider tax relief for downsizers? We know baby boomers are generally asset-rich and cash-poor: if you’ve lived in your home for 20-30 years, you’ll have paid comparatively little stamp duty, so psychologically adjusting to today’s tax bill is a hurdle. Getting older homeowners moving, and the market moving with them, will free up homes but also cash – and as they cash in, perhaps they will share that much needed capital with their family.
We should also remember that baby boomers are not immune to the cost of living crisis. For those with limited means, retirement limits their ability to earn their way through the crisis. They will feel the increases in electricity prices, and the inflationary impacts on property maintenance, especially in a larger property. They too may be put in a position to downsize if Stamp Duty is eased, and they will likely need the money that this generates.
For those fearing a sudden hole in the Treasury’s Stamp Duty revenue, bear in mind that incentivising downsizing would unlock tax-generating transactions elsewhere in the chain, as well as stimulating spending on home improvements.
It’s also fair to say that many older people will still opt to stay where they are, particularly given the working landscape we now see post-pandemic. Twenty-first century baby boomers have not sealed off the top floors and holed themselves up in the kitchen with a single electric heater. They do not all suddenly ‘retire’, and many segue nicely into ‘consultancy work’ and repurposing two family bedrooms for a study each works very nicely indeed.
If government policy particularly in the fiscal arena is to incentivise desired behaviours and penalise others, surely it should create a nudge in the direction of downsizing for those who wish to take it? Especially knowing that doing so will likely have positive knock-on effects for young families and for the housing market as a whole.
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