He used two models. In model A prices were predicted to peak in 2023 and fall to 75% of their value by 2030 whereas in model B they were predicted to peak in 2020 and fall to 62% of their value by 2030.
Professor Les Mayhew of Cass Business School has predicted that house prices will drop from between 25% to 38% in the mid-2020s as the baby boomer generation dies out.
In his report ‘The Last-Time Buyer: housing and finance for an ageing society’ he outlined a new concept called the Dwelling Index, combining demographics with data on household composition and housing supply to analyse past, present and future housing needs.
He used two models. In model A prices were predicted to peak in 2023 and fall to 75% of their value by 2030 whereas in model B they were predicted to peak in 2020 and fall to 62% of their value by 2030.
Professor Mayhew said: “This does not seem unreasonable, especially if earnings are not keeping pace. We have a huge cohort of baby boomers coming through and they’ll all be reaching about 80, 85 in the mid-2020s onwards.
“We expect something like a 30% increase in the annual run of deaths of people in that age bracket in the mid-2020s which is good news for people buying.
“Currently there’s about 150,00 deaths in that age group and will more than double by the 2020s. That will release a lot of property. The modelling we’ve done shows the growth in that number has an impact on house prices.
“It’s not set in stone but it’s a scenario that I tend to believe. We have a huge backlog of people saving for years that can’t save enough. You need to do something now to clear up the backlog.
“By the time you get to the mid-2020s the market and prices might ease. It does depend crucially on levels on migration as well.
“In 2000 the link between earnings and house prices dissipated. For many decades you could predict house prices from earnings, but house prices shot through the roof and earnings didn’t go up so anything that gets it back to that is good.”
The paper also cited research in several countrieswhichfound that prices tend to fall in line with decreases in the dependency ratio of people of working age to those aged 65 and older, perhaps by as much as 25%.
Mayhew added: “Looking ahead, population projections show that dwelling demand in the 20-64 and 0-19 age groups will level out, leading to reduced housing pressure from these age groups.”
Economist Bob Pannell,who’s independently consulting with Intermediary Mortgage Lenders Association (IMLA),said the prediction is not illogical but also nothing to worry about because if prices do drop because of baby boomers passing away, it’s likely to be a long, drawn-out process.
He said: “Demographics are important factors that help define and shape the housing market and will continue to do so. But demographics are just one factor amongst many.
“There’s lot so uncertainty what the housing market will be in the short, medium and long-term. If the demographics point to a drop in house prices that’s likely to be something that’s very drawn out and long-term in nature.
“The past 20 years has seen house prices rise and it’s not viable that process in the next 20 years could go in reverse with price drops, if the drivers are different.
“But it’s not all doom and gloom and we’re not looking at Armageddon here. If it happens and there’s a lot of uncertainty if it will, many factors shape the housing market.
“Lots of that is within the ability of policy makers who wouldn’t sit idlily by. If there’s a drop it’s likely to be long, drawn out and lacking in drama.”
Mayhew’s report focused on how to free up propertiesby encouraging so-called‘last-time buyers’to downsize.
He cited that 50,000 fewer homes would need to be built each year if everyone lived in accommodation suited to them.
To make downsizing easier he recommendedthatthe ability to port mortgages should be made easier and the government should focus on last-time buyers, looking atchangingstamp duty and capital gains tax.
