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Should empty-nesters be encouraged to move to smaller homes ?

Smart Money: Majority of Irish people live in homes too large for their needs

There are few more emotive subjects in Ireland than the "family home". And we do seem to live in bigger homes than the average. A European Commission survey published this week,estimating that seven out of 10 Irish people live in houses which have too many rooms for their needs – under-occupied households in the jargon – with the percentage rising for older households. It again raises the controversial question about whether "empty-nesters" – those living in large houses after their children leave – should be encouraged by the State to trade down to smaller properties to increase supply in the market.

1. The figures

Home ownership trends vary across the EU. The European Commission figures do show that the Republic is a notable outlier,with on average 2.1 rooms in our houses for every one person, compared to an EU average of 1.6 rooms.

Looked at another way, only Malta and Cyprus had a higher percentage of people living in what Eurostat, the EU's statistical arm, defined as "under-occupied" dwellings – just under 70 per cent in the Irish case. Among bigger EU countries, only the Netherlands and Spain were over 50 per cent. The UK, now departed, has reported rates of 55 to 60 per cent in recent years, reflecting the similarities between the Irish and UK housing markets. Property ownership is higher in Ireland and Britain – hence mobility could be expected to be lower, given the costs of selling and buying.

2. The background

How big is too big? The generally less dense Irish population structure, the number of people living in more spacious rural settings and the traditional suburban three or four bed “semi-ds” are all factors contributing to house sizes with more rooms than the EU average. Apartment living is more common in many continental EU countries and, in many, population densities are higher and smaller accommodation more common.

So what about the empty nesters? An ESRI study in 2016 by economists Alan Barrett and Elish Kelly found some evidence of empty-nesters occupying houses which were larger than their current needs might have merited. The paper was based on a long-term data study on the State's older population – the Irish Longitudinal Study of Ageing –which collected data from 2009 and 2012, so it is a bit of date now. However there is no particular reason why the trends would have changed, beyond the ups and downs of the housing market which may have had an impact on decisions on whether to trade down at particular times.

Most – though not all – single older people living on their own were in smaller homes, the ESRI study showed. However more empty-nest couples lived in large houses – around 30 per cent lived in homes with seven rooms or more. The report showed that very few of the sample moved home over the period studied – though the housing crash after the 2008 collapse may have had some impact here. Of those that did move, there were few signs that they were downsizing to smaller homes or moving out of urban areas, near many workplaces. Thus homes were not being freed up where demand would be highest from younger, working buyers.

A later Department of Housing survey, taken in 2019, showed that of the 560,000 households with people over-55, around three quarters had no interest in downsizing. But a significant number – almost 140,000 households – said they would consider it.

A report by the previous government - Housing Options for an Ageing Population – published last February, underlined that, by 2040, 23 per cent of the population will be over-65 compared to around 13 per cent now. It called on local authorities to provide options for council tenants to downsize in their area, as well as highlighting the need for many more apartments and homes to be built with older people in mind, including smaller developments within communities. These policy directions were repeated in the current programme for government.

Remember, too, that the Eurostat figures cover the general population, not just older people. Economists such as TCD's Ronan Lyons have pointed to the need for much greater building of smaller homes to suit the smaller household sizes now much more common.

3. The rows

Every time this topic is raised, rows erupt and allegations are made of people being “forced” out of their homes. Despite the ESRI study being based purely on data, it was criticised by the charity Alone and kept the Irish Times letters page busy. ESRI director Alan Barrett tweeted this week that he had received “tons of abuse, even though we said: ‘If mobility of older people meant movement out of familiar communities, this could be damaging and any policies in this area should be cognisant of this issue.”’

Likewise then minister of state for housing Damian English got some flak around the time the 2019 paper was issued.

Somehow, when the 2018 survey was being conducted by the Department of Housing, the issue of a bedroom tax – a charge on people with unoccupied bedrooms – came into the public debate, even though it did not seem to form part of the questionnaire. Predictable outrage followed. The UK has what is called a bedroom tax but in reality it is a controversial withdrawal of some benefits to tenants in social housing with unoccupied bedrooms.

4. The policy issues

Underlying this are some fundamental issues. One is the importance of the family home in the financial planning of Irish households. Often it is the only significant asset people have – at least for those without pensions. Once the mortgage is paid, it provides security of accommodation. It is a key asset which can be a security blanket to help pay, for example, for long-term care via a sale, renting out or availing of the Fair Deal scheme. And it is also generally the key item to be passed down to the next generation, often providing cash for their housing needs.

The importance of the family home in lifetime financial planning, as well as emotional and – crucially – local attachments, go some way to explain why the topic is so “hot”. The increasingly international nature of work undertaken by adult children – and the desire to have somewhere they can stay when they return for periods – is another. And many family homes are fuller now than a year ago as adult children returned home to work.

5. The policy options

Among the options quoted over the years to encourage older people to trade down are stamp duty or other tax incentives .Such policies can provide an incentive, though they do also lead to less tax being paid by people who would have moved anyway.

If supply is short, such incentives also tend to push up demand – and thus prices. And with the well-advertised shortage of housing supply, including in particular smaller homes and apartments which might appeal to downsizers, this could well be a factor, pitting downsizers against first-time buyers of smaller homes.

In some suburban areas there have been new apartment developments which have attracted some downsizers. But the clearest policy measure is the one that applies across the housing market – more supply, in this case of smaller properties within communities.

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