Older Australians are the reason Australia’s property prices won’t dive.
While many experts theorised that an ageing population would lead to a slump in property prices, it seems the exact opposite is true.
An Australian National University (ANU) analyst has found that older people staying in their houses for longer are likely to push property prices even higher in the medium term.
The demand for housing is currently driven by young adults and migrants, but older people are putting off selling their homes in favour of ageing in place.
The Australia's growth in households and house prices study, led by ANU economist Creina Day, has revealed that the rising population precipitated by migration and combined with the ageing population is holding the housing market steady.
According to the study: “Underlying market pressure arises as the number of households seeking to enter the market outstrips the number exiting.
“Current retirees, who are healthier and wealthier than their predecessors, tend not to liquidate housing wealth for general consumption because they prefer to remain in their own home as long as possible.”
While increased birth rates are also stimulating population growth, the effects of the trend won’t be felt for two decades. Migration is the driving force behind Australia’s population boom, which is leading to an increased demand for housing, as 88 per cent of migrants are under 40 and employed.
Plus as households shrink, you’ll see more apartments developed to support the demand for housing. In the 80s, Australia had an average household size of 2.9. Right now, it’s 2.6 and falling.
That decline could be attributed to more single households, especially older widows or widowers holding onto houses for longer. Our increased longevity also means more couples stay together longer in their family home, even if the size of that home is more than enough to cater for larger families.
Fewer people are entering retirement villages and aged-care facilities, too. In 1991, around 40 per cent of people over 85 were in some form of non-private dwelling. Since then, that number has dropped to 25 per cent.
According to the study, the annual rate of household formation in Australia is much higher than the number of available properties. In fact, our rate of household formation is 50 per cent higher than the rate in New Zealand and double the rate in Britain.
“We find that real house prices rise over time if the rate of household formation outstrips the rate of housing supply,” says the study.
“The results explain why real house prices may exhibit an upward trend despite the population ageing and how government planning could have an impact.”
This is good news for retirees whose wealth lies in property. Many self-managed super funds (SMSF) are also heavily invested in property. But fortunately, recent fears have eased that if the housing bubble burst, so, too, would the retirement savings of almost one in 10 SMSFs.
While former prime minister Paul Keating maintains that anyone who has borrowed to buy property in retirement are an “accident down the road”, that accident may be a little further away than first thought. Still, it pays to be cautious when regarding housing as an investment to safeguard your retirement.
Read more at The Australian
Are you happy to stay in your home for longer? Do you live in a home much larger than your needs? Is the Government’s downsizing incentive enough to get you out of your family home? If not, what sort of incentive would be preferable?