The UK government’s 2014 Care Act for England is due to come into force in April 2016. It will introduce a £72,000 cap on the amount anyone should pay for care in their lifetime. The point at which individuals would have to start contributing to care is proposed to be set at around £118,000 worth of assets (savings and property). The act has arisen in response to concerns about population ageing and the imbalance between taxes being paid by a shrinking workforce, and the demands on health and welfare funds by an increasing number of elderly people.
Concerns about this imbalance between the working and retired generations aren’t new, however, what has changed in recent years is the shift in political rhetoric around older people. They are no longer seen as being poor and deserving, but instead have become the hoarders of the nations’ wealth, in particular its housing wealth. Following this line of argument, the natural solution to meeting shortfalls in state funds available for care and support in later life, is to encourage older people to use the wealth that is stored up in their homes.
From one perspective this property-based welfare approach makes sense. In the 1970s less than half of 60 year olds were owner occupiers, by the 2000s this had risen to over three quarters. Among those buying their homes, some will have seen the value of their property rise considerably. In 1991 the average cost of a property was around £54,500, by 2013 it was three times this amount at just over £167,000. Analysis of the UKs Household Longitudinal Survey – Understanding Society – shows that in 2009/10 those aged 80 and above, who may be expected to cash in their wealth, owned around £332 billion in housing wealth – or around seven percent of the UK’s property wealth.
Using housing wealth to pay for care therefore could be advocated from an equality perspective in that it is only fair that those with the means pay for their welfare and do not pass the burden on to the younger tax-paying generation. However, this ignores the problem of inequality – not all older people have, or will have, enough equity in their home to cover the costs of their care.
Not surprisingly, those living in London, where property prices are significantly higher, can raise the most cash from selling their home. Over 80s in London account for £46 billion of total housing wealth. Meanwhile over-80s living in the North East of England share just £6.6 billion. The housing wealth for the same demographic in Scotland stands at £19 billion, £15.9 billion in Wales and £6.7 billion in Northern Ireland. What this means is that whilst on average an elderly person living in London has £417,000 of housing wealth, an elderly person in the North East has less than one-third of this, £131,000.
Taking mortgage debt into account, further analysis of the Survey of English Housing for 2011 also shows wide inequalities among home owners. For those aged 80 and over, estimated net housing wealth (house value minus any outstanding mortgage debt) ranges from £10,000 to £1m or more. Among those who are about to retire there are even wider inequalities. Those aged 50-64 are deemed to have benefitted most from rising house prices. But the research shows that the amount of net wealth in the family home can range from minus £280,000 (that is negative equity) to £1 million or more (Figure 1).
Figure 1: Distribution of housing wealth in England by Age (2011)
Source: Searle (2014)
Of further concern is that any move towards a housing based welfare system would exclude around one third of households who are renting and do not own any property. These households are also likely to be among the poorest in society and have no other financial resources to call upon in later life. Across all age groups the proportion of people without any housing wealth reduces the further up the income scale they are. A fifth of all households have no equity, and are located in the bottom two income quintiles.
The research concludes that the proposals in the Care Act are not sustainable for future generations. Accessing housing equity may be considered fairer than passing the cost burden on to younger tax payers. But the system needs house prices to continue to rise in order to provide enough equity for people to use. The cost of care is then passed back down to the younger generations in the form of high house prices. The next generation are paying the price by not being able to enter the homeownership market, or enter at a much higher income/house value ratio than their parents or grandparents did.
The UK is not alone in facing the fiscal challenges of population ageing. Where Governments are increasingly looking to the significant sums of housing wealth held by many older people as a model for funding old age care, they will come up against a number of significant political, practical and ethical barriers. As our research highlights, one of these challenges relates to the significant disparities in housing wealth held by older people.
The research is part of a broader project on Intergenerational Justice and Family Welfare, funded by the Leverhulme Trust (http://wealthgap.wp.st-andrews.ac.uk/).
This post has been jointly written by Beverley Searle and David McCollum, lecturer in Geography at the University of St Andrews and member of the ESRC’s Centre for Population Change.
Searle BA and McCollum D (2014). Property-Based Welfare and the Search for Generational Equality, International Journal of Housing Policy, 14, 4, 325-343;
Searle BA (2014). Who Owns all the Housing Wealth? Patterns of Inequality in England. Mind the (Housing) Wealth Gap Briefings No 3, and Patterns of Housing Wealth Inequality in Wales, Scotland and Northern Ireland, Briefing No 3 Appendix.