Financial peace of mind

If some of this country’s most high-profile commentators are to be believed, the blame for Australia’s housing affordability crisis lies squarely at the feet of older Australians.

With the great Australian dream of home ownership proving increasingly out of reach for many, economists and financial media have for some time now been pointing the finger at baby boomers, empty nesters and retirees. They argue this demographic is at fault for putting undue pressure on the market by staying put in their oversized family homes.

But not everyone agrees that active Australians are to blame for the issue, with demographer Liz Allen among them. Allen says Australia has a housing mismatch with young people struggling to get into housing that’s secure and meets their needs, while older people are in homes that typically exceed their needs.

Policy settings make it difficult for active Australians to downsize or right-size while fees associated with the legal and logistical aspects of moving make downsizing financially difficult, she says.

According to estimates from the Australian Bureau of Statistics for 2017/18, 83.6% of people aged 65 years and over owned a private dwelling, with or without a mortgage.

This compares to 66.2% of the total population, and 60.6% of the population aged under 65. The underlying number of homeowners aged over 65 was estimated to be 1.9 million. It is clear many active seniors are precautionary savers with a strong aversion to debt in old age which may go some of the way to explaining why some older Australians are not in any rush to move on from their family homes.

However, with much of their wealth tied in the family home, downsizing is increasingly being seen as a win-win for older people who struggle to maintain their property and also wish to release some equity to supplement their income.

A 2015 report by the Australian Productivity Commission showed home equity is a major store of assets among older Australians, comprising about half of the total wealth of people aged 65 years and over.

Accessing untapped wealth

Property market commentator Eliza Owen, also CoreLogic’s head of research, says the current real estate climate means there is now little reason why this wealth should continue to remain untapped. Owen says that while CoreLogic research believes it is likely the monthly dwelling value growth rate peaked in March 2021 (at 2.8%), conditions are still very favourable for sellers, largely due to the following:

• The combined capital cities auction clearance rate has averaged a red-hot 76% over the past four weeks, up from the decade average of 62%;
• National dwelling values have risen 10.1% since the start of the year;
• Typical time on market remains around its record low of 25 days, while vendor discounting rates are also around record lows with the typical discount from the original asking price recorded at -2.7% over the past three months.

Owen says total stock on the market available for sale remains around 25% lower than the five-year average.

"The sheer lack of available supply currently puts sellers in a very good position across many markets of Australia,” she says.

Owen says the Federal Government is also making moves to incentivise older Australians to consider making a move into a smaller residence.

From July 2022 the government will be lowering the age threshold for downsizer contributions from 65 to 60 years old. Owen says this will enable more older Australians to use profits from the sale of the family home to contribute to their superannuation.

“According to the ATO, for those eligible this is a non-concessional contribution and does not count towards contributions caps for those utilising the scheme.”

Providing financial security

Sandra York is one of many active seniors who have sought to capitalise on the present state of the market.

Having lost her husband a few years ago, Sandra says she began finding it increasingly difficult to maintain her three-bedroom home in Sydney’s Kellyville and began looking for something smaller.

“I didn’t want to do gardens anymore and I was very lonely. There were just too many memories there,” she says.

Earlier this year, Sandra sold her three-bedroom home in Greater Western Sydney for $1.2 million and purchased a two-bedroom unit in Aveo Bella Vista for $755,000.

Her experience in buying the unit was hugely positive, she says, because “everything was upfront and easy to understand, there were no hidden costs and everything was in plain English – something that is especially important when you’re by yourself and don’t have anyone to run these types of things past”.

“It was a good time to make the move because there was a big difference between what I could get for my own home and what I could buy. From a financial perspective, I now feel more financially secure because I have got peace of mind. I’m not a millionaire by any means but I can pay the fees here and still afford a good life.”

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