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Retirement, housing & Budget 2017

The so-called housing affordability ‘crisis’ hit a new peak on Monday when Treasurer Scott Morrison gave a long and detailed overview of his government’s likely policy responses to the high cost of housing – and the pain that this is causing for many Australians.

Some of the reasons for this crisis and the possible solutions offered by the Treasurer are practical – others seem to be firmly ideological. So once again, the politics will seemingly trump the policy as certain measures are ‘off the table’ before they even got onto it.

What does this mean for retirees? Very different things, depending on which tribe you belong to, according to YourLifeChoices recently released Retirement Affordability IndexÔ. And as such, there are policy solutions that can and should be applied to help everyone, across the generations, and not just a handful of wealthy investors and property developers.

The Treasurer is correct on one point in particular – that there is no silver bullet for the problem of housing affordability for the young, old or in-between. But he is very wrong when he declares that, “The principal cause of declining housing affordability is the failure of housing supply to adjust to increased demand, driven by higher economic growth”.

Highlighting lack of supply as the principlal cause of the overheated market totally ignores the negative impact (stated later in the Treasurer’s speech) when 27 per cent of housing stock is held by investors rather than owner occupiers. He goes on to state that “our private rental stock is owned by mums and dads” based upon the rather long bow that 72 percent of 2 million taxpayers own ‘just one’ residential investment property, and 90 per cent own ‘no more than two’. Of these, he notes, many are teachers or police officers. What this has to do with mums and dads is anyone’s guess, as there is no statistical evidence for the age of the ‘mums and dads’, for their assets, or other occupations – nothing at all, just the emotive tag of  ‘mums and dads’.

Given that there is a major housing affordability problem, and that no single solution will address this, a more complex, multi-pronged approach is obviously needed. So, here are YourLifeChoices suggested policies, in relation to the six retirement tribes.

Affluent couples and singles (retiree homeowners, mainly private income).
Given the relative financial comfort in retirement for these retirees, the ability to own multiple investment properties and benefit from both negative gearing tax concessions and lower Capital Gains Tax (CGT) should be questioned. We agree with Mr Morrison that a ‘scalpel’ rather than a ‘chainsaw’ approach should be adopted, so changes can be grandfathered to protect those who made decisions based upon current/previous legislation. It makes sense to perhaps retain negative gearing privileges on a first investment property, but remove them for any additional residential investments. Then slowly start to decrease the CGT concession from the current 50 per cent by, say, five per year, until it reaches 20 per cent. Obviously, economic modelling will need to be applied, but the policy direction should be to level the playing field for new home buyers at the expense of those with multiple property portfolios.

Constrained couples and singles (retiree homeowners whose main source of income is the Age Pension).
We agree with the submission from the National Seniors Association (NSA) that those older Australians who are asset rich but cash poor – i.e., they own a reasonably sized house, but are on a restricted pension income – could help ease the supply side of the housing problem, by allowing them to downsize without automatically losing the Age Pension entitlements due to the sudden increase in assessable assets. This is a sound policy suggestion that offers a win/win for both younger and older Australians – rather than pitting generations against each other.

Cash-strapped couples and singles (retiree renters whose main source of income is the Age Pension).
These are the people who really need help – at least 15 per cent of retirement-age Australians are renting, and most reliable projections show that this proportion is only going to increase. We checked the current rental assistance available to those on income support payments (i.e. pensioners) and can report that the maximum payment for a single renter, per week, is $66.10. If your current weekly Age Pension payment (plus supplements) is $444.15, excluding Rent Assistance, you will most likely be unable to afford to live in any of our major cities. So, as revealed in the YourLifeChoices Retirement Affordability IndexÔ, as well as spending 30 per cent of your income on rent you are facing higher household cost increases than CPI. The best policy for this group of struggling retirees is to review the Rent Assistance rates and increase them to a level that allows older Australians to remain in their neighbourhoods rather than be forced to move further out, where services are fewer and transport costs are higher.

So there it is, in a nutshell. To help solve Australia’s housing affordability problem, the Federal Government must stop talking about it and act. And the actions it can take to make home ownership widely available for all generations are to:

  1. reduce negative gearing advantages in an orderly manner, with grandfathering legislation
  2. reduce CGT reductions on housing in a similar manner
  3. allow retirees on an Age Pension to sell housing stock and downsize without asset test penalties
  4. increase rental assistance rates for age pensioners to be more in line with market prices.

What do you think? Are these suggestions fair? Which would you endorse? And which would you reject?

Related articles:
Retirement haves and have nots
Negative gearing changes a no-go
Is retirement now unaffordable?

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