Downsizing isn’t yet in Richard’s interest. That needs to change

You’ve probably heard of Henry – he’s a high earner, not rich yet. He’s on a handsome six-figure salary, but still feels hard done by. He’s at the sharp end of punitively high tax rates, with student loan repayments layered on top.

To make matters worse, government childcare subsidies are sharply withdrawn from those who earn more than £100,000, and sky-high housing costs in the cities in which Henry (and Henrietta) congregate eat further into his disposable income.

Henrys is largely ignored by our politicians (at least for now – MPs’ salaries will nudge over £100,000 in the coming years, which could sharpen minds). In part, that’s because they’re too busy pandering to his nemesis, Richard – who retired in a comfortable house and refuses to downsize.

There are quite a lot of Richards out there. According to the 2021 census, 57% of English households where everyone was aged 65 and above had two or more spare bedrooms. A further 29% had one spare bedroom. These numbers make no allowance for carers or family members who need to stay over, or couples who may wish to sleep separately, but still: that’s a lot of bedrooms.

If some of the Richards could be persuaded to downsize (or “rightsize”), that would enable growing families to upsize into larger homes, in turn freeing up their starter homes for first-time buyers. This is not, to be clear, a substitute for building more houses. The UK has spent decades failing to build enough, and rectifying that is an essential part of the response to the country’s housing crisis. But making more efficient use of the homes we have would help to ease pressure in the housing market.

Richard may have very good reasons for wanting to stay put, of course. Moving house is stressful, with significant up-front costs. He may have a strong emotional attachment to where he lives, or close ties with his neighbours, possibly built up over decades (39% of those classified as “under-occupiers” have been in their homes for more than 20 years, according to Barclays). He’s certainly unlikely to see downsizing as his social duty: Ipsos polling in 2021 found that just 5% of baby boomers agreed that “older people in homes that are larger than they need should sell their properties so others who need them more can buy them”.

But even if Richard were open to the idea of downsizing, government policy actively discourages him.

Take the social care system. In England, if you need social care, you’re only eligible for council funding if you have financial assets of less than £23,250: above that level you are expected to self-fund. The sums involved can be enormous: one-in-seven people aged over 65 can expect to incur lifetime social care costs of more than £100,000.

Crucially, if you’re receiving care in your own home, the value of that home doesn’t count towards the asset test. Cash does. So, if Richard chose to downsize and take a cash windfall, he might find himself spending the cash on social care costs he’d previously have been protected against. No wonder Richard decides that he’s better off keeping his wealth locked up in his nice big house.

Then there’s the tax system. Primary residences are exempt from capital gains tax. If Richard downsized, and reinvested the proceeds into the stock market, he could end up paying more to HMRC. Within council tax, the 25% single-person discount is effectively a subsidy for under-occupation. And because it’s a percentage discount it offers the biggest pounds and pence subsidies to the single Richards living alone in the largest houses with the highest council tax bills – hardly an incentive to downsize.

That’s before we consider the worst culprit of all: stamp duty land tax. It’s a tax on housing transactions, which means it discourages transactions. Even if Henry would be happier moving his family into Richard’s big detached house with a garden, and Richard would be happier downsizing to Henry’s easier-to-manage terrace, stamp duty discourages them from making the trade. It’s economically destructive, with a particularly large impact in London and the south-east, where house prices are higher and shortages most acute.

Given all of that, it’s not too much of a surprise that only 8% of baby boomers intend to move to a smaller property to help fund their retirement, according to Barclays. Among those who do move, the majority opt for a detached or semi-detached “family” home, rather than a flat or a bungalow.

In other words, Richard will not be downsizing, thank you very much. Which only makes it more important that we build more houses.

Let’s not ask Richard what he thinks about that.

Photographs by Matt Cardy/Getty Images, Getty Images