11th Apr 2017
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Budget 2017–18: outlook for retirement and housing
Author: Kaye Fallick
Budget 2017-18: outlook for retirement and housing

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?

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    COMMENTS

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    Priscilla
    13th Apr 2017
    12:39pm
    The bottom line is that if people, young or older, cannot afford to purchase a home, then how on earth is it going to help them if seniors, retirees, etc., sell their homes. This is a ridiculous suggestion. You can either afford to purchase a home or not. Getting rid of negative gearing will definitely make a huge difference to the availability of homes to purchase but you have to be able to save money to buy a home first and then be able to make the mortgage payments. No one GAVE retirees their homes. They scrimped, saved and went without to ensure they have a home to live in. Downsizing is not the answer to the housing problem. Using superannuation as a deposit is definitely a stupid idea as well.
    sunnyOz
    13th Apr 2017
    1:15pm
    You are SOOOOOO right!! Same with letting people use their super to buy a house. Prices will just go up. Negative gearing scrapped? - lack of rental places, and rents go through the roof. Keating tried that and rents blew out hugely, because pool of rental properties was reduced. I rent out my house as I had to move for work reasons. If negative gearing is scrapped, I would have to turn out tenants or increase rent hugely, or take back house, putting me out of a job. What saving is that?
    Slimmer Cat
    13th Apr 2017
    2:21pm
    The major problem is that young people do not know how to save.
    New smart phone every year, good car bought on the never never, coffee on the way to work, coffee at lunch and after work, drinkies after work on Friday night. Older generations took their lunch from home, bottle of Nescafe at work owned a second hand car and paid cash for the car, did not run up credit card debt they could not pay. After hard work and savings put the deposit on first home, not in the inner city but where they could afford a home or unit and then paid 18% interest and still managed to eventually own the home.
    gadsby
    13th Apr 2017
    10:01pm
    lol Slimmer cat ,ive noticed that too everyone walks around with a paper cup of coffee in their hand these days,is the the "cool" look for the younger ones,and usualy a $300 pair of sunglasses masquerading as a hair band..
    The young folk will have to get used to the fact that inner city living is beyond them ,just like it was in my day ,and move to the "burbs".they should also hope and pray the govenment doesnt introduce a death tax witch will realy put them behind the "eight "regarding some sort of inheritance.
    But youve got to laugh a $6 coffee in one hand ,and a $1000 cell phone in the other.
    MacI
    14th Apr 2017
    10:33am
    Priscilla - I don't get your objection to seniors selling their home to down size.

    The proposal does not require seniors to sell their home. The status quo remains for those who don't want to.

    Many seniors would dearly like to downsize to a home that is much easier to manage but the disincentive is that the realisation of additional assessable assets would significantly reduce their Aged Pension entitlement (especially with the taper rate at $3/$1000).

    On the supply side this proposal would release family-size homes on to the market for young families and an provide an incentive for developers to build more homes targeted at seniors.
    Farside
    17th Apr 2017
    6:21pm
    @SunnyOz - "Keating tried that and rents blew out hugely, because pool of rental properties was reduced. " - it simply isn't so. This myth is often repeated however it is not supported by the facts even though it was widely but erroneously accepted at the time.

    The truth is that vested interests were able to hoodwink Keating and others to reinstate the gravy train that is negative gearing by jumping onto a simplistic but untested explanation. It is true that rents increased dramatically between 1985 and 1987 in two cities, specifically Perth (31%) and Sydney (26%), from 17% the previous two years. This increase was not unprecedented with rents growing by a greater amount on an annual basis in late 1982 and early 1983. (#1)

    The reality is real rents in Adelaide and Brisbane fell considerably from 1985 to 1987, whilst Melbourne experienced low, or at times no, real growth in rents. If negative gearing was responsible then rents would have increased in these markets but did not because they were at a different stage of the rent cycle to Sydney and Perth. Adelaide and Melbourne prices had real increases above 6% between 1982 and 1984. Perth and Sydney were at different stages and rents increased due to unusually low vacancy rates of 1.4% and 1% respectively after peaks in the early 1980s. (#2)

    #1 http://blog.corelogic.com.au/2012/12/negative-gearing-and-its-impact-on-the-housing-market/

    #2 http://www.abc.net.au/news/2015-05-06/hockey-negative-gearing/6431100
    niemakawa
    17th Apr 2017
    6:33pm
    Scrapping negative gearing or even adjusting any perceived tax break will only make he situation worse. If I had an investment property I would take measures so that it it vacant for a while and I am certain many investors would consider doing this. There will be a shortage of rental properties and many people who rent will be asked to vacate the premises. That is fair enough why should those that always take financial risks have to provide a buffer for the inept and lazy bludgers that abound in this Country. There are far too many undesirables looking to rent, steer clear of them, better not to rent at all.
    KSS
    13th Apr 2017
    1:26pm
    I have some serious misgivings about these supposed 'solutions'.
    The punishment of so-called affluent homeowners for one. Ms Fallick makes the gross assumption that anyone with a negatively geared property is necessarily wealthy. This simply isn't the case in most situations.

    The preferential treatment of some retirees over other for another. Ms Fallick again wants to punish those retirees who have amassed super in favour of those that didn't. She seems to think that absolving retirees of the asset test if they downsize to release the capital is fair even if they then have the same assets as those still subject to the asset test with exactly the same amount. How is that fair and equitable?

    The point she makes that is worth considering is increasing the rent allowance to reflect current (and future) market rate rents. If someone qualifies for a full Government pension it is because they have no other assets. And that is exactly how it should be. Although I do not agree that a pension should be an amount to be comfortable nor should it cover holidays and the like, it must be adequate to cover needs (NOT WANTS) and necessities. Somewhere to live is just that. Perhaps Centrelink could enter into rental agreements with landlords and pay the rent directly to them - much like the armed services do. That could be attractive for landlords who would be guaranteed a long term tenant who pays their rent on time so may even reduce the rent a little for peace of mind.
    jackie
    13th Apr 2017
    2:09pm
    KSS That negative gearing is middle class and wealthy class welfare. There should never be welfare for the greedy rich and corporations. They can take care of themselves very well.
    Rae
    13th Apr 2017
    3:20pm
    Negative gearing should only extend to the income generated by the investment itself. It should never allow income tax from labour to be discounted. It is not a work related expense.

    Negatively geared property is a mug's punt at the best of times. A good positively geared investment property will generate it's own income. Everything else is purely being subsidised by taxpayers. Some of whom are on piddling wages and have been for far too long.

    Government policies of austerity and wage cutting will make it worse. I expect some workers and retirees are deciding whether they can continue to pay current rents much less the huge increases people think you can just conjure up.

    This fantasy of wealth through property speculation will lose some inexperienced investors a lot of money at current prices and historically low interest rates.

    Young, first home buyers should be kept out of the market until it corrects to mean.
    mareela
    13th Apr 2017
    2:05pm
    Never ceases to amaze me how everyone thinks they can tell retirees what they can and can't do re their housing. Nobody offered to pay my mortgage when I was paying interest at 18% in the eighties. It's taken me 30 years to pay my humble home off and I have absolutely no intention of downsizing. Where would I go that I could afford? Bunch of morons these pollies and everyone else that feels they can tell us what we should do. I for one am sick of it. Leave pensioners alone.
    niemakawa
    13th Apr 2017
    10:17pm
    Quite right. It seems that most non-homeowners believe they should be looked after because of their own failings in life. I have little sympathy for their plight. I owe them absolutely nothing.
    jackie
    13th Apr 2017
    2:06pm
    We can thank the Liberal governments for allowing the housing crisis to happen by allowing cash purchases by Chinese without them having to provide proof as to where they got their money from. All our Liberal politicians have invested in negative gearing that is why they won't put an end to it. A government that hides its own wealth offshore is a government that does not care about the Australian economy and its people.
    GeorgeM
    19th Apr 2017
    8:30pm
    Yes, jackie, you have correctly noted the 2 Demand factors (overseas Chinese buyers and excessive use of Negative Gearing by local investors including many politicians) which are mainly causing the artificial prices, yet this Govt won't even mention these!

    Disallow buying by Overseas Buyers, especially Chinese who don't allow others to buy up property in China, and restrict Negative Gearing to only 1 property by local investors, and the problem will be solved!
    Janus
    13th Apr 2017
    3:36pm
    Morrison will do a stupid thing, like paying big developer mates cash to build lots of cheap shitty houses to lower demand and so reduce prices...or something equally foolish. Time for this guy to be given an ambassadorial post somewhere, like the last one, and the one before him.

    Waiting for the bubble to burst, so my cashed up kids can move in and snap something up.
    gadsby
    13th Apr 2017
    10:05pm
    Yes and that day will come ,and there will be firesales all over the country.a 2% rate rise will see a lot of people off.
    Breakfree
    13th Apr 2017
    4:00pm
    RE: 'Retiree renters whose main source of income is the Age Pension', I was renting before the property was sold, and for the last 5 months have been couch surfing. One lot of NRAS property managers told me that I could only afford $191 per week, on my income. Please tell me where I can find that and stay in a country town, where I moved to for cheaper rent originally. It would take a substantial increase in the rental assistance subsidy.
    niemakawa
    13th Apr 2017
    4:28pm
    Do you not have family who can help you? If you do then they should be the first port of call not other taxpayers.
    Rae
    13th Apr 2017
    4:53pm
    Stanthorpe in Qld is a lovely town and a bit of semi skilled work in the hospitality and tourist businesses springing up.

    If I wasn't set here I'd move there myself.

    Not too far from Brisbane or Armidale for culture, specialists etc.

    With rental assistance it could be viable as there are properties for $250 a week.

    You might get a cabin for your $191.
    $191 with a bit of luck or pick up a day answering phones or manning a chocolate shop or motel work.

    There were 72 semi skilled jobs there last time I looked.
    melbgirl
    17th Apr 2017
    4:51pm
    This is the problem with renting, at any time you can find yourself forced to move on, with no affordable options available. With rent taking over half income, there is no capacity to save either. Which part of the country do you live in
    niemakawa
    13th Apr 2017
    4:05pm
    Age pension is paid based on assets and income. Which ever produces the lowest result then that is the basis for receiving a pension. The suggestion that those that downsize should not be penalised through the assets test may seem like a solution on the face of it. But any income derived from the excess cash would still be taken into account. It is highly likely then that the deemed income would deny many an age pension or a much reduced one. The fact is that year in year out the Government of the day tampers with the age pension so I have little if any trust for such a scheme. It would be better if all retirees were given a basic pension and health card, regardless of income or assets. Pensioners the may be willing to downsize knowing that they will still receive a pension. All income will be taxed according to one's marginal tax rate.
    Franky
    13th Apr 2017
    5:17pm
    I agree, this is the case in most developed countries as far as I know. It's a stupid idea to means test the age pension, as the more someone has accumulated in their working life, the more tax they have paid. And now they are penalized for it??? This is simply wrong! You are spot on, it would then make sense to downsize and simplify life if there is no penalty involved.
    Cruzisuzi
    13th Apr 2017
    4:28pm
    Vote for a party that gives all retirees a pension irrespective of income and assets. Tax accordingly on their income. So simple. Totally new mindset for our two dominant parties. What a saving for the complexities of the current Centrelink administration. What a nightmare they have created for all Australians.
    Jtee
    13th Apr 2017
    9:51pm
    Totally agree. New Zealand apparently does this.
    Franky
    13th Apr 2017
    5:13pm
    No one is talking about the demand side of things, immigration! It's way too high with nearly a quarter of a million new migrants every year. That is what creates economic growth, nothing else. Bring it back to a more neutral setting would be my advice to the government. We are all talking sustainability, but endless growth is diminishing our quality of life.
    niemakawa
    13th Apr 2017
    5:33pm
    Australia is a puppet of the UN whose aim is to re-settle millions upon millions of people from "poorer" or so-called war-torn nations to the more "affluent" ones to enhance and enrich our well-being. In effect the lowest common denominator. See what is happening in Europe. The sooner Australians understand this, then they will vote for a party that has the Country's best interest at the fore. Libs/Lab/Greens have deserted us and are intent on destroying this once great Nation. Unabated Immigration of people whose beliefs are alien to our own is the biggest threat facing this country.
    gadsby
    13th Apr 2017
    10:19pm
    Well franky ,ive got news for you,your advice will fall on deaf ears,Governments ,particulaly State governments have become addicted to the amount they receive in stamp duty,from cashed up Chinese,who will happily pay $500.000 more than the property is listed for (and think they got it cheap),and real estate agents are on the band wagon too.
    Rodent
    13th Apr 2017
    5:55pm
    Dear Niemakawa

    Just a correction to an earlier post you made on 11 April 2.30pm you said 1.5 Mil people on DSP that's not correct, as at June 2016, latest available the Total is 782891 people on DSP
    niemakawa
    13th Apr 2017
    6:17pm
    Dear Rodent,

    I take your word for it, I no longer have my post. Have a look at this . The number of DSP recipients in 2013 was much greater than the figure you have quoted. It is so difficult to get any reliable information from any Government dept these days. Having said this I suspect that the number is closer to 1.5 mill than 782, 000.

    Source: http://www.aph.gov.au/about_parliament/parliamentary_departments/parliamentary_library/pubs/rp/budgetreview201415/dsp


    Growth in DSP receipt
    Receipt of DSP has grown substantially over the last three decades, despite various attempts to tighten criteria for eligibility. The numbers of people on DSP grew from 216,600 in June 1982 to 821,700 in June 2013.[6] This has led the Government to question the sustainability of the DSP in the absence of further reform.[7]
    niemakawa
    13th Apr 2017
    7:03pm
    I found the post to which you refer, you have made a mistake. See extract.

    "more than 1.2 million people claiming a disability pension. Most of these would be under 65 years of age. "
    Anonymous
    14th Apr 2017
    6:47am
    And probably half have nothing at all wrong with them! I know of one who recently filed an Affidavit claiming to be in a wheelchair, but her FB page shows her regularly dancing and even running in a marathon, and she climbs a steep flight of stairs to her upstairs home unit. Reported to C/link. No action taken.
    Anonymous
    14th Apr 2017
    6:51am
    BTW. She's been rorting the system for 30 years. Never worked. Claimed a neck injury initially, but removed her neck brace to win a limbo contest! Total fraud. And now, having inherited a large sum, she's building a $1 million+ luxury home so she can still claim a full pension. Meanwhile people who worked hard and lived frugally are struggling and having to drain their precious savings prematurely because of a cruel and grossly unfair assets test and low investment returns. Responsible workers and savers are being punished in order to reward lazy, bludging fraudsters. No wonder we have a problem with welfare affordability.
    Rodent
    14th Apr 2017
    11:59am
    Dear Niemakawa

    Apologies for my error about 1.2/1.5mill. The facts are sourced from DSS Demographic data, interesting stuff

    Yes DSP Numbers did grow as you say in past years. In Sept 2013 there were 825238 on DSP, but this started to reduce gradually as from Sept 2014.

    As at Sept 2016, latest now available, the DSP Number is 777133
    Blinky
    14th Mar 2019
    11:39am
    I agree w Priscilla. If u r a pensioners n u worked n saved to buy your own home, you earned it. You worked so as to have a good, solid n comfortable roof over your n your children's head. No one should now take that away from you! The primary home must be holy!!!
    If you have reached the age pension n dont own your own home, there is something wrong w you. U had plenty of time to work n buy a home. Dont blame other pensioners x your misfortunes!!!
    Blinky
    14th Mar 2019
    11:39am
    I agree w Priscilla. If u r a pensioners n u worked n saved to buy your own home, you earned it. You worked so as to have a good, solid n comfortable roof over your n your children's head. No one should now take that away from you! The primary home must be holy!!!
    If you have reached the age pension n dont own your own home, there is something wrong w you. U had plenty of time to work n buy a home. Dont blame other pensioners x your misfortunes!!!
    Blinky
    14th Mar 2019
    11:39am
    I agree w Priscilla. If u r a pensioners n u worked n saved to buy your own home, you earned it. You worked so as to have a good, solid n comfortable roof over your n your children's head. No one should now take that away from you! The primary home must be holy!!!
    If you have reached the age pension n dont own your own home, there is something wrong w you. U had plenty of time to work n buy a home. Dont blame other pensioners x your misfortunes!!!


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