Australia’s declining rate of home ownership threatens to sink our superannuation and pension systems.
Home-owning retirees will increasingly be forced to use some or all of their superannuation to pay off their mortgages.
An increasing proportion of retirees will live in privately rented housing and be forced to spend a higher proportion of their income on rent.
As a result, fewer Australian retirees will be able to support themselves without relying on the age pension and governments will face growing pressure to raise the age pension and Commonwealth rent assistance.
These are the main findings of a report written by economist Saul Eslake for the Australian Institute of Superannuation Trustees (AIST), a lobby group for not-for-profit super funds.
The report, No Place Like Home: The Impact of Declining Home Ownership on Retirement, says Australia’s retirement income system is based on the assumption that the vast majority of retired people will have very low housing costs.
It presumes most of them will own their own homes, with mortgage debt fully paid off, and that those who rent will typically be accommodated in cheap government housing.
“These presumptions have allowed successive Australian governments to maintain age pensions at lower levels than in most other ‘advanced’ economies without resulting in higher levels of poverty among retirees,” it notes.
These assumptions are under-mined by three trends that have emerged over the past two decades:
- Declining rates of home ownership among people of working age, especially those in their late 20s and early 30s;
- A rising proportion of home owners, particularly among those in their late 50s or early 60s, who still have mortgage debt outstanding;
- A declining proportion of people aged 65 and over living in accommodation rented from state or territory housing authorities, and an increasing proportion living in private rental accommodation.
These trends are likely to leave more retirees wholly or partially dependent on the age pension than is currently assumed.
That will generate political pressure for increases in the level of Commonwealth rent assistance, in the age pension itself, or both.
“These prospects should encourage Australia’s current generation of political leaders to give more thought to what can and should be done to ameliorate or reverse the long-term decline in home ownership rates among people currently aged between their mid-20s and their mid-50s,” the report says.
It says there is “little doubt” that first home buyers have been “squeezed out” of the housing market by investors over the past 25 years.
“In 1991–92, both groups accounted for around 17% of total lending for housing (with the balance being for existing home owners ‘trading up’).
“By 2014–15, the share of housing finance commitments going to investors had risen to 53%, while that going to first home buyers had declined to less than 10%.”
The report argues state and federal governments could help more people to become home owners by increasing the supply of homes and affordable rental housing, and using the tax system to reduce competition between first home buyers and investors.
It recommends:
- Abolishing or modifying negative gearing and the capital gains tax discount;
- Requiring regulators to force a reduction in growth in lending to property investors;
- Further tightening rules for foreign investors;
- Pressuring state governments to exempt pensioners from stamp duty when ‘downsizing’. ■
High rents forcing nurses out of Sydney
Clinical nurse consultant Marie Coughlan has rented homes in Sydney since she arrived from her native England in 1985. Following steep rent rises in recent years she now pays about half her wage to a landlord and is considering moving to a cheaper city.
“I was paying $250 per week for a one bedroom flat in 2004 and the same place today would probably be around $650,” says Marie.
“Our wages haven’t kept up with the cost of living and though I’m on a fairly good wage now it’s not helpful if half of it goes in rent.
“I specialise in drug and alcohol and I’m also qualified as a nurse practitioner. If I could find a similar specialised position in a cheaper location I would seriously consider moving.
“I am nearing the age at which I should be able to retire, but if I stay in Sydney I will never be able to retire.”
Marie’s $700-per-week apartment is a 30-minute bus ride from her workplaces at Prince of Wales and Sydney hospitals.
A superannuation payout in 2001 gave her enough for a deposit on a studio apartment but no bank would give her a loan.
“They gave two reasons: first, I was a single woman and second, they required me to purchase a place bigger than 40 squares which I would have been unable to afford on my wages at that time.”
She subsequently did two work stints in the United States plus overseas voluntary work and rents skyrocketed in her absence.
“Since returning to Sydney I have never been able to save enough to get a deposit together and pay the rent.”
Marie welcomes the NSWNMA’s attempts to give the issue of housing affordability for essential services workers a higher profile.
“Younger nurses are definitely feeling the pinch, but also older nurses who are still renting will be in trouble if they don’t have massive superannuation. If nothing is done I think Sydney will become another London, where most people cannot afford to live decently.”