Older people and home ownership
Dr Debbie Faulkner, a research fellow at the University of Adelaide's
Centre for Housing, Urban and Regional Planning, told the committee that
housing affordability issues for older people are often overlooked, 'because we
just assumed they have home ownership'. However, home ownership rates for older
Australians, like home ownership rates overall, are trending lower, from
81 per cent of over-65s today to a projected 55 per cent by
the middle of the century. This trend, Dr Faulkner told the committee, is being
driven not only by people not taking on home ownership, but by people falling
out of home ownership for a range of reasons.
In part, the declining trend in home ownership rates for older
Australians underlines the importance of ensuring the rental market, community
housing and housing services are able to meet their needs (subjects addressed
in the next section of this report). However, to the extent the decline is
correlated to worsening affordability, it also reinforces the need to address
home purchase affordability. This is particularly the case given Australia's
retirement income system is to a large degree predicated on the assumption that
most retirees will own their own home outright and therefore have relatively
low housing costs.
This chapter considers the importance of home ownership as a form of
wealth in retirement, the merits of continuing to exclude owner-occupied
housing from the aged pension means test, and the need for policies to remove
potential barriers to downsizing (or 'rightsizing') by older homeowners.
Home ownership as a form of wealth in retirement
Home ownership, as noted previously in this report, is a significant
form of private wealth in Australia, and this is particularly apparent for
older home owners. As Mr Borrowman, Associate Professor Frost and Dr Kazakevitch
noted in their joint submission:
...older Australians are less likely to be in residual housing
stress than younger Australians. This is driven by the length of working lives
and the housing cost advantages of having paid off a mortgage. Home ownership
is a form of saving that allows households to draw on home equity if their
situation changes. Households that are able to enter and remain in home
ownership are much better off in older age than those who rent. This is further
encouraged by the family home being exempt from means testing for the aged
Australia's retirement income system is in large measure based on the
assumption that people will own their home by the time they retire. As the CFRC
explained in its submission, Australia's relatively low pension rates, when
considered against rates in other OECD countries, reflect typically lower
housing costs resulting from higher levels of outright home ownership. As home
ownership levels decline, however, so too will the adequacy of the aged
The Combined Pensioners & Superannuants Association of NSW (CPSA)
noted that Australia's retirement income system is often characterised as
having four pillars: the age pension, superannuation, voluntary savings and the
family home. Whether a person owned their own home in retirement, it suggested:
...can mean the difference between getting by and abject
poverty. For this reason, CPSA is gravely concerned about the decline in home
ownership among people entering retirement.
Anglicare Australia submitted that because aged care and pension systems
in Australia are, in effect, designed for home owners:
...after-housing poverty rates are consequently higher for
non-home owning older households. It also means those people have less capacity
to modify their homes as they get older and, in most cases, are unable to find
more suitable housing in the private market. One of the consequences is the
increasing isolation and disability that older people in unsuitable or
inaccessible housing face. Another related trend is for people in those
circumstances to move into residential aged care at an earlier age as there are
no other options available to them, which can also be as costly, if not more so
than private rental.
The UDIA noted that home ownership was a major factor in limiting the
demands of an ageing population on government finances:
Government spending on pensions in Australia is able to be
considerably lower than in many other countries, because high levels of home
ownership amongst retirees have made their housing costs very low. Increasing
numbers of people entering retirement reliant on social housing or private
rental as a result of their inability to achieve home ownership will result in
rapidly escalating costs for government.
Similarly, Dr Vivienne Milligan from the CFRC suggested that if home
ownership for older people declined, then this would likely mean that 'pensions
are going to have to rise very significantly or rent assistance for pensioners
is going to have to rise very significantly'. The potential cost to the
Commonwealth, Dr Milligan argued, was itself reason enough for the Commonwealth
to be deeply engaged in addressing home purchase affordability.
Mr Graham Wolfe, Chief Executive of the HIA, told the committee that with the
proportion of Australians entering retirement as non-homeowners rising, home
ownership as a form of wealth in retirement was 'a very, very important issue
for the government today and for payments and social security going into the
Also noting that importance of home ownership in Australia's retirement
income system, the Equality Rights Alliance drew the committee's attention to
the difficulties experienced by older non-homeowners. Beyond the financial
disadvantage experienced by older renters, the Alliance noted that
non-homeowners had poorer outcomes in terms of social integration and
participation. It was particularly concerned about the growing cohort of older
women who did not own their own home as they moved towards or entered
Using figures from the 2011 Census, we estimate there are 222,958
women who are over the age of 45, single, on low to median incomes and paying
off a mortgage. More than half of these women are over the age of 55 and one
quarter of these women are already experiencing mortgage stress. 119,844 men
are in the same situation. Australia has recently seen a large increase in the
proportion of those aged 50–64 carrying mortgage debt and older women in
particular are less able to maintain home ownership at this age. This is
particularly concerning when we consider that older women have lower levels of
workforce participation and face intersecting age and sex discrimination in the
COTA recommended that the government create a facility to enable older
Australians to borrow against the equity in their home to pay for aged-care
services costs. COTA noted that the Productivity Commission had in fact
recommended the establishment of such a scheme in its Caring for older
Australians report (2011).
The scheme proposed by COTA would be HECS-like in its design, in the sense that
as people incurred their bills, they would be set against the equity in their
Unlike HECS, where we do not have a guarantee of recovery, in
this type of scheme you certainly would have a guarantee of recovery, because
generally speaking we all die. It is a way of using your house as a line of
credit without doing something really clunky like a big reverse mortgage which
then becomes a loan you have to repay.
Pension eligibility and home ownership
While most federal income support payments are subject to an asset test,
the value of a person's principal home (or, colloquially, the 'family home') is
exempt from inclusion in the asset test of most transfer payments, including
the aged pension. This means that pensioners can still access the pension
irrespective of the value of their principal residence. When a person sells
their home, the proceeds are exempt from the asset test for up to
12 months, as long as they are intending to buy another home. However, the
interest earned on sale proceeds is counted under the income test, and if a
cheaper home is bought any surplus cash is included in the test.
While owner-occupied housing is not included in the asset test, the
asset threshold above which the full pension is reduced is higher for
non-homeowners than for homeowners.
AHURI suggested that while the exemption of the family home from the
aged pension asset test encouraged 'ageing in place', it might also work to:
...undermine incentives to downsize or sell the house if this
serves to reduce access to pension entitlements (Ong 2012). Judd et al. (2014)
showed that older people tend to occupy larger houses than suggested by their
household size suggesting some inefficiency according to typical standards of
occupancy. While most older people desired to stay in their homes, downsizing
may also have benefits in terms of better fitting needs as people age and
Similarly, Associate Professor Yates argued that the asset test on
pensions can create 'lock-in' effects that may discourage the sale of housing,
even when a retiree might wish to move to more suitable accommodation.
WALGA, stressing the importance of the family home as a store of wealth
for retirees, argued that for its continued exemption from the aged pension
This recognises the attachment many Australians have to their
family homes and the benefits of allowing retirees to age in place. It also
enables older Australians to stay in communities they may have spent most of
their lives in. Furthermore, owner-occupied housing is an important source of
wealth and financial security for older Australians.
Within the context of housing affordability, the exemption of
the family home from the Age Pension means test probably lowers turnover in the
housing market and, as such, contributes to unaffordability. Nonetheless, given
the importance of the family home to retirees, the Government should not punish
this group of Australians for remaining in owner-occupied housing through
measures such as including their homes in means testing.
Instead, disincentives for retirees to downsize could be
addressed. For example, when a retiree sells their home and downsizes to a
smaller dwelling, the means test exemption should apply not only to their new
dwelling but also to the proceeds from the sale of the original home. By
'quarantining' these funds, downsizing retirees will not be penalised relative
to those who choose to keep living in their family home.
Similarly, both COTA and Seniors Australia expressed opposition to
including the family home in the assets test.
Seniors Australia submitted:
Seniors whose only source of income is an age pension or
annuity tied to superannuation have no capacity to generate additional income
other than divesting themselves of the family home. This would lead to
additional pressure on the private housing rental market and social and public
housing, and increase the risk of homelessness.
COTA did, however, suggest there might be scope:
...for increasing the difference between the asset holding of
home and non-homeowners but this would need to be done in a way that does not
offer too much of an incentive for older people to sell their homes and move
into rental accommodation.
However, Mr Michael Basso argued that the best way to address the
existing disincentive to downsizing to more appropriate accommodation, thereby
'freeing up larger homes for new families', was to include the principal
residence in the aged pension means test.
Downsizing, resizing, 'rightsizing'
A number of witnesses explained that while many older people might
prefer to move out of the family home and into more appropriate accommodation,
financial and other barriers sometimes prevented them from doing so.
It might be noted while witnesses generally talked about 'downsizing',
COTA told the committee that it preferred the term 'rightsizing'. The term
'downsizing', COTA Chief Executive Mr Ian Yates told the committee, could
be taken to mean:
... that you want to put all older people into single-bedroom [residences],
because they are old and they do not need more than a single bedroom. The
reality, of course, is that in later life your home is also your workplace, and
older Australians contribute to our society in all sorts of ways, including
that they might look after grandchildren, including that they might have
hobbies and voluntary activities that require space in the home. So it is often
more about getting rid of the big garden than [it] is about not needing more
than one bedroom. Indeed, many need two or three bedrooms for those kinds of
reasons. So it is about right-sizing.
The committee believes COTA raises a useful point in this regard, and
believes the policy discourse might benefit from reframing the issue to be
about 'rightsizing'. However, for the purposes of this report, the term
'downsizing' is used, given this was the term generally used by witnesses and
because it has a commonly understood meaning.
While noting that older Australians who owned their home were better off
than older Australians in rental accommodation, Mr Borrowman, Associate
Professor Frost and Dr Kazekevitch outlined obstacles to downsizing that meant
some people remained in unsuitable accommodation. They noted, in particular,
that would-be downsizers were often discouraged by substantial transaction
costs attached to changing houses. As such, they recommended exempting
downsizers from stamp duties, which would 'help them to release some of the
funds for supporting their incomes and contribute to the supply of established
housing for younger growing families'.
CPSA noted there were several barriers that often inhibited people from
downsizing, including the cost of stamp duties (except in the ACT where over
65s are exempt from stamp duty). It therefore recommended that states and territories
remove stamp duty for pensioner home owners.
As KinCare acknowledges in its submission, existing government policy is
based on a recognition that most older Australians are living at home, and many
older Australians have a preference to remain in their home for as long as they
can. The Australian Government has committed almost $1 billion over five
years to help older people stay at home through a range of measures, including
an increased number of home support packages.
National Seniors Australia's research, as relayed to the committee, has
shown that two-thirds of older Australians want to stay in their own home or,
if they have to move, to at least remain in their local area.
Mr Ian Yates, Chief Executive of COTA, told the committee that oftentimes
... actually do not necessarily want to live in the family home
but they do want to stay connected to the networks and the services and so on,
and converting from one form of housing to another in your same area is
frequently a significant challenge, both financially and in terms of things
like planning laws and all that. As a society, I think we need to get our head
around that a bit better.
In its submission, COTA noted the benefits of rightsizing, both for
older people and in terms of the availability of housing stock more broadly:
Right sizing allows older people to accommodate their life as
it changes, frees up housing stock for the broader community and can reduce the
cost of ongoing service delivery. For homeowners there need to be some
incentives to encourage them to 'right size' so that their accommodation better
meets their later life needs.
Ms Mary Wood, Executive Director of Retirement Living Council, part of
the Property Council of Australia, told the committee that because sale of the
family home could negatively impact a person's access to the aged pension:
...a very large number of seniors end up staying much longer
than they want to in their family home, which is full of trip hazards and
[leads to] social isolation, which is a huge problem and an expensive problem.
They lose some control over their life, thereby making it much more likely that
they will end up being admitted into a residential aged-care facility, which
for many people is the very situation they want to avoid. They are also
precluded from using proceeds from their home sale to help pay for the health
and other supports that they need.
The Productivity Commission addressed the adverse effect the sale of a
residential home might have on a retirees access to the pension in its 2011
report, Caring for Older Australians. The Productivity Commission
recommended the government establish:
...an Australian Age Pensioners Savings Account scheme, for
those on a full or part-rate Age Pension who wish to deposit all or some of the
proceeds of the sale of their principal residence. The real value of the
savings account would be maintained by consumer price indexation, and be
excluded from the Age Pension assets and income tests. The savings account
could be drawn down flexibly by the account owner for any purpose.
However, the scheme recommended by the Productivity Commission would
have been part of a broader package of reforms, including the removal of the
exemption of a person's principal residence for the aged pension assets test.
The former government, in its Living Longer Living Better aged care
reforms, did not take up the Productivity Commission's recommendation for an
Australian Age Pensioners Savings Account scheme.
However, in the 2013–14 Budget the then government announced its
intention to implement the Housing Help for Seniors pilot program, with a
commencement date of 1 July 2014. Had the pilot been implemented, it
would have allowed a homeowner who had lived in their home for at least 25 years
to sell their home and have at least 80 per cent of the proceeds from
the sale of the home (that is, the sale price less any valid encumbrance such
as a mortgage, and less the purchase price of the new home), up to a cap of
$200,000, quarantined in a special account so that it was not considered as
part of the aged pension asset test. The money in the account plus any interest
earned would be exempt from the asset test for up to ten years, providing there
were no withdrawals during the life of the account. The exemption was to be
available to people assessed as home owners who moved into a retirement village
or a granny flat, but would not have been available to people moving into
residential aged care. The program, according to the budget papers, would have
cost $112.4 million over the forward estimates period.
Mr Yates explained that COTA was supportive of the Housing Help for
Seniors pilot. While it was a modest scheme, COTA nonetheless believed it
should be trialled and evaluated, and it might then form the basis for a
broader set of initiatives directed toward encouraging rightsizing.
National Seniors Australia informed the committee that its surveys of
aged pensioners indicated that 28 per cent thought the proposed pilot
scheme would have influenced any decision they made to downsize. National
Seniors did note its concerns regarding restrictions within the scheme,
including the inability of pensioners to access the money set aside in a
special account for medical costs, housing repairs or modifications, and
emergency bills. However, it told the committee it 'would have welcomed
attempts by the current government to address some of the shortcomings of the
pilot rather than disband it completely'.
The RDC (part of the Property Council of Australia), suggested the
scheme was too restrictive, both because it was limited to pensioners who had
owned their own home for 25 years and because the equity released could
not be spent, even on health or care services. Writing prior to the
government's announcement that it would not proceed with the scheme, the RDC
suggested that the scheme be redesigned so as to:
limit the trial to Australians aged 75 and over—i.e. move to age
based eligibility rather than the length of home ownership test;
limit eligibility to those Australians who qualify for the full
rate age pension; and
allow Australians who take advantage of this initiative to use
the non-means tested funds held in their special account for a range of
approved health and age-related service costs (up to $25,000 per year on health
and wellbeing costs including private health insurance, community care,
meals-on-wheels and cleaning).
Ms Wood outlined how the Property Council's proposal for 'unlocking home
equity' would work. It would, she told the committee, be limited to full-rate
aged pensioners aged 75 and over 'so that you are not getting into welfare
creep by part-pensioners or people who want to plan their affairs to qualify
for a part-pension'. Pensioners would be able to access a capped amount of proceeds
from the sale of their home—Ms Woods suggested $150,000—for health and
wellbeing expenditures without affecting their pension eligibility. The scheme
would, Ms Woods argued:
...remove this major barrier to downsizing and unlock home
equity for productive economic purposes, including allowing spending by age
pensioners on health and wellbeing services that otherwise the taxpayer would
need to fund or that they just do not get and so end up living an impoverished
life in every sense of the word.
CPSA, however, thought the scheme was too restrictive, and unlikely to
encourage many pensioners to downsize.
For a majority of Australians, the family home remains their most
valuable asset, even with the introduction of compulsory superannuation in the
The committee notes that some witnesses argued for inclusion of the
family home in the aged pension assets test. However, the committee believes
such recommendations do not afford sufficient weight to the attachment many
people have to their home, or recognise the benefits of allowing people to age
It may be that the exemption of the family home from the aged pension
means test encourages some overinvestment in housing and, in some cases,
discourages people from moving to accommodation better suited to their needs.
However, improved housing affordability achieved through policy which pressures
older Australians to sell their homes to access capital, potentially disrupting
their ties to family, friends and community, would be a hollow achievement. The
committee believes a better approach would be to explore innovative and
affordable policies that allow retirees to downsize (or 'rightsize') when they
wish or require to do so, without the sale proceeds necessarily jeopardising their
pension eligibility. Programs such as the Housing Help for Seniors program,
announced by the former government in the 2013–14 Budget but abandoned by the
current government in the 2014–15 Budget before it was legislated, would be
worth exploring in this regard.
More generally, the committee believes there is currently a lack of
overall strategy to facilitate 'rightsizing' and ageing in place. As such,
governments should consider including measures in the national housing
affordability plan proposed at recommendation 4 to ensure the housing market
properly meets the needs of older Australian homeowners.
The committee recommends that the government investigate new policy
settings that will address barriers to downsizing (or 'rightsizing') by
retirees, including schemes along the lines of the Housing Help for Seniors
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