Jeremy Hunt when health Secretary claimed that 70,000-80,000 people a year were forced to sell homes to cover care costs. Sadly a figure which dates back to research for the Panorama programme in the mid 90s.
Theresa May’s policy chief has suggested that people with valuable homes who face high social care costs in old age should downsize or re-mortgage to cover their bills, the Observer can reveal.
Director of policy John Godfrey has suggested that over the next 10 years the solution to the social care crisis lies in people selling up or releasing some of the equity in their property.
“On a 10-year view … equity release is going to be hugely important, because if you look at the amount of housing equity across the UK that is owned by people of post-retirement age, that is really where an awful lot of the money sits at the moment,” Godfrey told an independent commission last year. “Can people either downshift or liberate some of that money through equity release to fund their living costs?”
Full Fact correctly apply a stock-flow analysis to the argument. What matters is not just the ‘stock’ of people in care but the ‘flow’ of people into care. To obtain that number you have to divide it by the mean stay in care – 2 1/2 years.
According to Laing & Buisson’s most recent figures, in 2011/12 175,000 people paid for their own care – an increase on 2009. If we repeat the calculation above, we arrive at a figure of 52,500 self-funders selling their home or 21,000 per year.
Lets be clear the supply of new homes on the market is the total of new housebuilding plus the existing stock recycling onto the market. Each house not sold for equity release is one less house released to the market. The Dilnot reforms would have been a disaster for intergenerational equity.
The issue of whether a family should be able to retain an asset is conceptually different from the issue over whether they should be required to sell a portion of that asset to release equity. A more carefully tailored policy would cap both care and ‘lodging’ costs at around 150,000 pounds which might be revenue neutral to the treasury. Local authorities should be banned from implementing ‘costs deferral on death’ policies which keep houses empty whilst elderly citizens live in homes. Contra those entering care should be encouraged to sell and downsize heir homes to purchase an annuity which would fund care costs with the remainder of the equity used to purchase a smaller home which would revert to the family on death. This home would be rented to fund the lodging costs of a care home. If there was proper integration of health, housing and social care at a local level then this would result in a flow of 21,000 rental units a year for affordable housing leading to considerable savings to housing benefit and an essential new source of rental housing to younger people. Indeed the scheme could be extended. If capital gains on houses were properly taxed on death tax breaks could be extended for homes released to affordable housing providers in similar schemes.