Boomers to the rescue Tax breaks proposed for older downsizers to fix housing shortage
Seniors hold the key to unlocking supply, but high costs impede their move to smaller homes. Image: Canva.
  • Two-year CGT exemption and means-tested stamp duty cuts proposed.
  • Australia has more bedrooms than needed, with older Australians stuck in large family homes.
  • Tax breaks will encourage seniors to sell, boosting listings and benefiting first-time buyers.

As the nation’s housing supply shortage reaches critical levels, much public debate is being raged over how the Federal Government can best intervene and solve this problem.

National total property listings

Particularly, rent freezes and limitations on tax breaks are being called for by some to solve the nation’s scant listings, bloated home values, and sky-high rents.

Others deride these suggestions, saying that it will exacerbate an already dire situation.

Raine & Horne’s executive chairman, Angus Raine, proposes a radical solution to alleviate the nation’s supply bottleneck; namely, more tax discounts for older property investors.

Altering CGT obligations for older investors

Raine notes that the proportion of property investors aged 60 and above has risen significantly since the early 2000s.

Furthermore, spiralling property values during the COVID-19 pandemic have made it more challenging for older property investors to sell their long-term assets.

National weekly asking property prices

Hence, Raine argues that deploying a two-year sunset clause for capital gains tax (CGT) payments will encourage more of this pool of investors to sell, freeing up much-needed housing supply.

“Property held by older investors contributes to supply challenges in capital cities. One option to breaking the supply impasse is to provide older investors with an exemption for, say, 24 months on the payment of the CGT liability. This exemption should also come means test-free,” he said.

“The aim of this exemption is to free up supply by encouraging the release of long-held assets by older investors, specifically baby boomers (born 1946 -1964) and the silent generation (1928-1945).”

Removing stamp duty tax obligations for empty nesters over 70

Raine also urges state and territory governments to implement stamp duty tax concessions for empty nesters over 70 who want to downsize.

“Stamp duty eats into the retirement nest eggs of many older Australians that are tied up primarily in their three to four-bedroom family homes,” he said.

Through these changes, Raine is confident that state governments can alleviate financial burdens for older property owners, and also remove supply obstacles hindering the plans of second-time property buyers.

“This proposal would also unlock supply and allow the next generation of families the opportunity to occupy these larger houses.”

Angus Raine, Raine & Horne

Indeed, Raine has not been the only one who has raised the issue of older Australians having difficulties finding homes more appropriate for their circumstances.

Downsizer economist in residence, Michael Blythe, has previously said that Australia is facing an excess of bedrooms, rather than a housing crisis.

Though older property owners may be asset-rich, they may not necessarily be cash-rich. Thus, cost remains a significant hurdle impeding their move to a smaller home.

By incentivising these populations to downsize, properties better suited for first-home buyers can be freed up in the market.

Taking a page from history

Raine is confident that these dual tax incentives will be popular among retirees, pointing to transitional changes made to superannuation by the Howard Government in 2007.

Then, the Government gave retirees a short window to make up to $1 million in after-tax superannuation contributions before 30 June 2007. After this, a $150,000 yearly limit on non-concessional contributions was imposed.

“Property listings in Sydney skyrocketed as investors cashed in their housing assets and pumped the funds into superannuation to take advantage of the tax changes that unlocked larger homes,” Raine said.

“In February 2007, I told the Sydney Morning Herald, ‘This selling is going to free the market up … and really bring down the ceiling for first-time home buyers’.”

“Seventeen years later, my conviction remains the same that implementing some tax breaks for older property owners could yield similar results by unlocking a significant amount of tightly held property in our capital cities for many years for the benefit of younger buyers and upgraders.”

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