The cost of renting and the increase in renters may blow out our pension system.
If Australia’s pension system is to maintain pace with rising mortage costs that prevent people from owning a home, then the Government may need to act now to redress the housing affordability crisis.
If Australians are trapped in our increasingly unaffordable rental market, future federal budgets will likely blow out.
Results from the 2016 Census reveal a sharp decrease in home ownership over the past 25 years. In 2016, houses being rented or owned with a mortgage made up 65 per cent of households, whereas in 1991, they made up 54 per cent of households.
While the generation heading into retirement enjoys a relatively high rate of home ownership, the current lack of affordable housing means future generations will be increasingly likely to rent rather than own.
This, in turn, means the Government will need to support a greater proportion of the population either with rent assistance or the Age Pension.
Pensioners who own their home are significantly better off than those who rent. In fact, the amount of money needed for a decent retirement almost doubles if a single person or couple do not own their home by the time they retire.
The number of people who rent a property rose to 30.9 per cent in 2016. Just 25 years ago, 26.9 per cent of Australians rented their home. Today, around one in 12 people aged 65 and over live in a rented property. If homeownership becomes more unaffordable, that figure, too, will rise.
Should this trend continue, Australia’s superannuation savings and the Age Pension system will struggle to meet the future cost of living.
If the Government is hoping to reduce Australia’s future welfare bill, then addressing housing affordability would seem the most likely starting point.
Statistics from YourLifeChoices’ Retirement Affordability Index March 2017 show that around 29 per cent of singles on the Age Pension who rent devote almost 30 per cent of their income to rent.
The story for renting couples is not much better, with around 22 per cent of their income spent on housing.
So how do they make ends meet? By skimping on necessities such as food, health care and utilities.
You can imagine how much worse it will get in future, should the cost of owning or renting a house keep increasing.
The fact: if the Government doesn’t do something to reverse this decline of home ownership, either by investing in public housing, adjusting negative gearing and capital gains tax laws and taxing foreign housing market investors, the affordability crisis will deepen.
Already around 260,000 rent assistance payments are made annually to age pensioners. That figure will increase dramatically over the coming years. Add to that the increased cost of government-funded health care and aged care because older Australians can’t afford to maintain their health as they age, and you have all the makings of a welfare system blowout.
Yes, it’s a challenge for the Government. But if it is not looked at as an investment in Australia’s economic future, then our annual welfare expenditure will rise so fast and so quickly that a AAA credit rating will be the last thing the Government should worry about.
Do you think enough is being done to address housing affordability? What suggestion can you make to help fix this this situation?