- Homes are becoming less suitable for older Australians.
- Various problems stand in the way of providing the right solution.
- Large costs and the right location are among the concerns.
Downsizing in Australia is part of the broader housing diversity conversation. While there is growing momentum behind the idea of downsizing, major hurdles remain firmly ahead.
Where the true housing shortage is
At a UDIA WA event, Downsizer Economist in Residence, Michael Blythe, highlighted Australia’s aging population. In parallel, houses were also aging and becoming less suitable or unsuitable for older Australians.
As homes became no longer fit for purpose, the upkeep of older houses also became a growing challenge.
Blythe raised the poignant point of home sizes.
As the number of empty nesters rose and home composition changed, Australia is not so much experiencing a housing crisis, as it is an excess of bedrooms – the number he put on it: 13 million.
Who is downsizing?
Downsizers comprise around 6.7% of the population, according to a Downsizer/DFA survey, or about 190,000.
The majority of potential downsizers were in the 60 to 70 year old age bracket, with an intent to transact within the next two years.
The survey also found that most potential downsizers live in large dwellings, typically three or more bedroom houses, with almost half (47%) living in a dwelling worth more than $1 million.
Downsizing strongly incentivised
Blythe noted that some five years ago, the government introduced incentives to downsize.
He said that in some cases, over 55’s were able to contribute up to $300,000 from the sale of a home into a superannuation fund. This rose to $600,000 for couples.
“The average super fund return over the past decade was 6.9%. So, an extra $300,000 of superannuation assets released by downsizing could potentially boost retirement income by $21,000 per annum,” Blythe said.
That of course came with the disclaimer that the commentary was not financial advice. You should consider appropriateness and suitability to your own objectives, financial situation, and needs, and, if appropriate, seek professional or independent financial advice, including tax and legal advice.
Barriers to downsizing
Cost and location are major hurdles to overcome, with Downsizer’s research finding that 36% of those who moved stayed in the same postcode; a further 24% stayed within a one to nine kilometre radius of their previous residence. A challenge of staying locally is whether suitable homes are located within the preferred area.
Among the cost barriers: stamp duty. A $1.5 million home could see stamp duty payments of some $60,000 to $80,000. Blythe noted, however, that some states offered downsizer concessions.
Being cash poor also presented a barrier, despite being asset rich.
Last time buyer benefits?
On the policy front, Blythe also touched on how there has been a significant focus on first home buyer assistance. He noted assistance measures were not really helping first home buyers, instead driving more demand into the market and therefore playing out in a negative way.
He suggested perhaps focussing on last time buyers.
“These people are already in the market, and not going to add to demand. We’re helping them move from one property to another, and in doing so, freeing up the type of properties that first home buyers are more interested in.”
In a panel, including Blythe, Blackburne managing director Paul Blackburne, and Providence Lifestyle group director John Wood, facilitated by Jane Bennett, panellists also considered how stamp duty may impact older Australians.
It was noted that older generations were more conservative with their money, and to save up years of income just to move did not add up. Among the ideas floated: a temporary pause on stamp duty, or a tiered or capped system.
Bringing home the point, it was said the impression that older Australians are wealthy and worth taxing more was wrong. They have been working their entire lives, were asset rich, income poor, and perhaps felt like they have never had money in their life as they paid off mortgages, raised children and so on.
Disclaimer: The Property Tribune attended the event as a guest of the Urban Development Institute of Australia (WA).