Retiree home ownership is about to plummet. Soon little more than half will own where they live

Soon little more than half will own where they live.

Brendan Coates, Grattan Institute and Tony Chen, Grattan Institute

Australia’s retirement incomes system has been built on the assumption that most retirees would own their home outright. But new Grattan Institute modelling shows the share of over 65s who own their home will fall from 76 per cent today to 57 per cent by 2056 – and it’s likely that less than half of low-income retirees will own their homes in future, down from more than 70 per cent today.

Home ownership provides retirees with big benefits: they have somewhere to live without paying rent, and they are insulated from rising housing costs. Retirees who have paid off their mortgage spend much less of their income on housing (on average 5 per cent) than working homeowners or retired renters (25 per cent to 30 per cent). These benefits – which economists call imputed rents – are worth more than A$23,000 a year to the average household aged 65 or over, roughly as much again as the maximum pension.

You’ll be okay if you own
The Grattan Institute's 2018 report Money in Retirement showed that while Australia’s retirement income system is working well for the vast majority of retirees, it’s at risk of failing those who rent. They are more than twice as likely as homeowners to suffer financial stress, as indicated by things such as skipping meals, or failing to pay bills.

This is not surprising – renters typically have lower incomes. But the rising deposit hurdle and greater mortgage burden risks means rates of home ownership are falling fast among the presently young and the poor.



The share of 25 to 34 year olds who own their home has fallen from more than 60 per cent in 1981 to 45 per cent in 2016. For 35 to 44 year olds it has fallen from 75 per cent to about 62 per cent.

And home ownership now depends on income much more than in the past: among 25-34 year olds, home ownership among the poorest 20 per cent has fallen from 63 per cent to 23 per cent.



But fewer will
Home ownership is likely to fall further in coming years. Using Grattan Institute modelling, we find that on current trends, the share of over 65s who own their home will fall from 76 per cent today to 74 per cent in 2026, to 70 per cent by 2036, 64 per cent by 2046, and 57 per cent by 2056.

And while the Grattan Institute does not project home ownership rates for different income groups due to data limitations (it only has the necessary Census data on home ownership rates by age and income only for 1981 and 2016), it is more than likely that less than half of low income retirees will own their homes in future, down from more than 70 per cent today.



Today’s younger Australians will become tomorrow’s retirees.

Worsening housing affordability means renting will become more widespread among retirees. As a result, more retirees will be at risk of poverty and financial stress, particularly if rent assistance does not keep pace with future increases in rents paid by low-income renters.

And rent assistance won’t much help
The maximum rent assistance payment is indexed in line with the consumer price index, but rents have been growing faster than the consumer price index for a long time. Between June 2003 and June 2017, the consumer price index climbed by 41 per cent, while average rents climbed by 64 per cent.

That’s why the Grattan Institute's Money in Retirement report recommended boosting Commonwealth Rent Assistance by 40 per cent, at a cost of $300 million a year in today’s dollars. That would restore it to the buying power it had 15 years ago. It should be indexed in future to changes in the rents typically paid by the people who get it, so its value is maintained, as recommended by the Henry Tax Review.

There’s another important implication. Retirement incomes are likely to become more unequal in future. Money in Retirement found that in general future retirees will have adequate retirement incomes. Most workers today can expect a retirement income of at least 89 per cent of their pre-retirement income, well above the 70 per cent benchmark used by the Organisation for Economic Co-operation and Development, and more than enough to maintain pre-retirement living standards.

But retirees who rent will have much less for living on.

There will be ‘haves’ and more ‘have nots’
Among home-owners, an increasing proportion will be still paying off their mortgages when they retire – the proportion of 55 to 64 year olds who own their home outright fell from 72 per cent in 1995-96 to 42 per cent in 2015-16. Some will (quite rationally) use some or all of their super to pay off their mortgage.

And rising housing costs will in time force retirees to draw down on more of the value of their home to fund their retirement.

Currently, few retirees downsize or borrow against the equity of their home while continuing to live in it. But that will have to change.

House prices have outstripped growth in incomes. Median prices have increased from around four times median incomes in the early 1990s to more than seven times median incomes today (and more than eight times in Sydney).

Government policy should continue to encourage these retirees to draw down on the increasingly valuable equity of their homes to help fund their retirement. They are not the ones who will need government help. The government’s recent expansion of the Pension Loans Scheme that allows all retirees to borrow against the value of their homes is a step in that direction.

Retirement is going to change in the years ahead. Most retirees will be far from poor, many of them better able to support themselves than ever before. But an increasing number will not. They are the ones who will need our help.

Brendan Coates, Fellow, Grattan Institute and Tony Chen, Researcher, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.





    COMMENTS

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    TREBOR
    15th Apr 2019
    10:34am
    Such a thing as near universal home ownership - with only the ne'er-do-wells not owning a home, were built on the concept of the Old Australia, in which a Single Living Wage was a reality and a FAMILY could afford to raise its family and own a home eventually.

    That dream began to erode and finally vanish from the moment the Mandatory dual Income Family became the 'norm' - this was a direct result of forcing another 40% workers into the workforce (women), and then of the gradual social moves from industrial production to a softer 'service' economy that resulted.

    Add to that social changes such as simple divorce and the basis of all legal thought being based on 'feelings' (real or not) and the recipe was set to produce a never-ending disaster of broken families and homes, and thus an endless number of people who would no longer own their own home in retirement. With a minimum 50% divorce rate and a rising demographic that will not marry as a direct result of the punitive costs of marriage/famiuly/divorce these days - what is left are a rising number of singles who on one income cannot compete with those on two, and who will thus, in many cases, not own their own home. You could, in the past, say the same about the majority of gays who did not enter into a 'marital relationship', and thus had to have a high single income or not enter the homing market.

    Add to that the rising tide of un- and under-employment, and the consequent inability of many to even get a start in homing (not housing), and it is clear that more and more people will end up with no homing in retirement.

    It's an inevitable as a disaster such as the Christchurch Massacre....
    TREBOR
    15th Apr 2019
    10:37am
    I've owned two homes - paid a hell of a lot for them, too, in interest etc.... then spent time on the streets less than twenty years ago with nothing but the clothes on my back after choosing badly for my second run at marriage .... then rebuilt again... now I'm set to move to an oceanside spot with all the facilities... and without a single handout from anyone, let me tell you, and certainly no criminal activity. This after a lifetime of dedication, loyalty, integrity, and damned hard work encompassing more hours per week than many nightmare about.

    I think I've earned the right to speak... in more says than most.
    TREBOR
    15th Apr 2019
    10:44am
    Add to that the sublime stupidity of governments respective in continuing to bring in huge and unnecessary numbers of immigrants, and the chances of owning a home in a genuinely diminishing market are getting worse and worse...

    Then we could discuss the unbalancing of the market due to government subsidy for non-productive 'deadstock' 'business' called serial house hoarding. As I've already said - if you can't afford to subsidise an industry that produces hard good and employs thousands - how can you subsidise a series businesses that lose money and pay very few in reality while producing nothing?
    Rae
    15th Apr 2019
    4:53pm
    Housing policy including Shorten's idea will result in, mostly foreign, professional landlord owning property and many renting for life. They best not be spendthrifts and start saving a bit because retirement is going to be pretty tough after that happens.

    Everything from the ALP decision to sell housing to foreign buyers is leading to that. There are hundreds of millions of very rich families out there who will happily invest in Australian holiday homes' It's safe and stable and the weather is great. Why wouldn't you buy here if a multi millionaire.

    The capital gain changes were a disaster. Howard didn't see deflation coming. Costello made mistake after mistake. Then the ALP opened the floodgates. Housing affordability was destroyed by Labor letting foreign buyers loose.

    Speculating on housing only works in a boom. It's insane when prices are falling.
    Anonymous
    18th Apr 2019
    2:30pm
    True. Rae. But why on earth do so many think the solution to everything is to rip off Australians who saved a bit and are striving to be self-supporting to fund more 'services' and handouts. When Aussies have nothing left. we will have a country owned by foreigners and you can be sure they will have NO sympathy for poor Australians.

    Let's kill investment by Aussies with taxes and taxes and more taxes, because NOBODY should be allowed to have more than Joe spendthrift, of Jill who claims to have had 'a tough life' and 'lots of disadvantages'. And when we've made everyone equally poor, then who does Labor milk to pay the bills?

    15th Apr 2019
    11:23am
    "Australia’s retirement incomes system has been built on the assumption that most retirees would own their home outright."
    Whoa back there! When was this statement ever made and by whom? I have never read or heard any reference to home ownership being a part of the way that age pensions are calculated. Just because it is written at the head of this article doesn't make it the truth. I am prepared to eat my words and apologise if someone , anyone, can offer the proof that the statement has a ring of truth.
    TREBOR
    15th Apr 2019
    11:41am
    In days of olde (when Knights were bold etc) - most family units could go to work in an industry etc and eventually own a home. At that time the pension was supposed to be able to adequately support a retired couple in their own home - the Australian Dream.

    Nowadays, of course - these UNDERLYING assumptions no longer hold sway.. it's not a matter of declared policy - it's a matter of departmental calculation as presented to political bodies for approval or nay.

    Many such assumptions are underlying ones and not necessarily a component of a policy statement - and 70% or so of government is done by regulation and public service etc.

    I didn't take that from the head of this subject... it's just, as I said, an underlying assumption. If it were not so we would not have rental assistance as an addition, but would have a single pension overall rate.
    TREBOR
    15th Apr 2019
    11:43am
    No need to apologise - just view the difference between public policy statement and underlying assumptions.... and that the figure is derived from calculations by a PS or otherwise paid (outsourced) body.
    Anonymous
    15th Apr 2019
    12:16pm
    "......and girls were not particular."
    Thanks Bob, I note that you have made a statement, "At that time the pension was supposed to be able to adequately support a retired couple in their own home - the Australian Dream." Who, apart from your good self, made that statement? Sorry to go on but if a statement isn't challenged it becomes like a politicians lie, if repeated often enough it becomes the truth.
    TREBOR
    15th Apr 2019
    1:03pm
    Well, I did say it was an underlying assumption.....(and the girls were not particular)... so it's only what I say and see.... trouble when dealing with political animals of any kind (all stripes) you need to read between the lines too much...

    In any case, the reality remains that a couple could work, own a home, raise a family on a Single Living Wage, and eventually retire in their own home through hard work and luck, and live on the pension.

    Now many of the opportunities no longer exist and the orderly society we once had no longer exists,so there are many cracks through which people may fall.
    Rae
    15th Apr 2019
    4:59pm
    Whitlam when he instigated a universal aged pension was relying on the profits of mining, gas and uranium belonging to the Australian public. That would have made all the difference. We actually would be the rich nation we think we are while just about everything is foreign owned or contracted to corporations.
    Karl Marx
    15th Apr 2019
    11:24am
    It's never easy for most. My parents struggled from time to time back in the 60's. But now new home buyers want everything from 4 to 5 bedrooms, rumpus room, double garage, fully fitted put kitchens and lanscaping.
    You have to work hard and sacrafice to achieve what you want, some will a lot won't because they live in the now
    Abby
    15th Apr 2019
    1:29pm
    You are spot on SFR
    You forgot to mention holidays overseas, new car and TV etc.
    Anonymous
    16th Apr 2019
    11:56am
    Yep. Home affordability is more about expectations and spending priorities than income. Interest rates are at rock bottom, which makes the lifetime cost of buying way lower than it was for the Baby Boomers (who paid anything from 7% to 18%+). There are still loads of affordable homes if you get out of the inner city and look for older, smaller houses like most of us and our parents bought.

    I agree with Trebor though, that creating a situation where two incomes are a requirement made it tough for many. Widowed, divorced or single parents will certainly struggle.
    leek
    15th Apr 2019
    11:43am
    I know so so many single mums in their 40's that will probably never own a home. I asked one of those mum's about her future prospect of owning a home. She seems to think that she will be able to use her Super to buy a home later on. With the cost of housing in Melbourne I doubt that anybody could buy a house outright. They might be able to get a mortgage BEFORE they apply for the Aged Pension. When you are on the AP, pretty sure you can't get a mortgage(I might be wrong) over than reverse mortgage which is completely different.
    the Future is bleak. I blame the government for letting people who are actually live overseas buying our houses. I lived in an area where at every auction, the houses were being brought but the same nationality of people(I won't say which). And apparently they are still allowed to do it!(with slight changes to the rules) Young aussie familes cannot out bid these people. I have been watching this happen to my suburb for over 15 years.
    And it has already happened in many nearby suburbs of Melbourne.
    My future is okay, and am trying to help my children(young adults at the start of their working lives), so they might have a chance.
    At the end of the day is the best I can do.
    TREBOR
    15th Apr 2019
    11:49am
    Also many divorced of both sexes... often men.... the demolition derby on family structure is bearing fruit for the parasites and vultures..... the banks, the real estate agents, the lawyers, and the serial house hoarders (as opposed to home owners)....

    Imagine paying 5-10 years of mostly interest to the banks only to see it demolished on a 'feeling' of one side of the marriage equation...... no wonder the 'traditional' and 'patriarchal' family structure groups are killing Aussies in the house ownership market and the overall prosperity market....

    Pappa he's-a run da show, an' a-Mama she's a do the woman thing.... an' retire rich an' play-a da pokies for holiday at $5 a shot....

    Meanwhile the Divorced Bloggs family are in tents and caravan parks and under the bridges.... truly feminism has a lot to answer for in reinforcing the benefits of the patriarchal traditional family structure over a free range adventurism .... to the detriment of millions of people ....
    TREBOR
    15th Apr 2019
    1:13pm
    No wonder so many dopes are turning to the 'certainties' of Islam... it's certain your woman will know her place and that your marriage a quatre will endure.... unless you dump her....
    Rae
    15th Apr 2019
    5:04pm
    I supposed coming home pissed and beating her up is out. Islam doesn't allow drinking. The beating part is okay though and whipping and stoning and even killing if she does you wrong. You could move to Brunei or the Arab Emirates.
    Brissiegirl
    15th Apr 2019
    5:53pm
    While we still have a modicum of free speech you should be able to say which nationality is paying whatever it takes to buy up Australian houses (Chinese) and have therefore inflated the cost of housing for locals. This is happening in every state, and indeed every western country in the world that has been foolish enough to ignore the dilemma this has caused to our own citizens.
    And still some people want death taxes (Labor) that would reduce the funds "left" for their kids after a lifetime of work and going without to pay off the family home, the taxes to go towards housing for the leaners at the expense of the lifters.
    retvilldotnet
    15th Apr 2019
    12:23pm
    And retirement villages only make matters worse. Ever increasing the number of older Australians who don't actually own their home although many think they do, decimating their capital base and in many cases sending them back to the taxpayer to help fund their aged care costs.
    floss
    15th Apr 2019
    12:59pm
    Yes the over population of Australia is coming home to roost just another Government stuff up.
    TREBOR
    15th Apr 2019
    1:05pm
    Stupid short-sighted policy carried through without reference to the people... the insolence of office.

    Now disband, you rabble - your betters know what's best for you!
    KSS
    15th Apr 2019
    1:23pm
    "Home ownership provides retirees with big benefits: they have somewhere to live without paying rent, and they are insulated from rising housing costs. Retirees who have paid off their mortgage spend much less of their income on housing (on average 5 per cent) than working homeowners or retired renters (25 per cent to 30 per cent). These benefits – which economists call imputed rents – are worth more than A$23,000 a year to the average household aged 65 or over, roughly as much again as the maximum pension."

    Here we go again, taking potshots at people who saved, made sacrifices over many years, weathered interest rates of 17.5% and finally paid off their mortgage. For the vast majority of people buying a home was never easy, it took dedication, tough choices and sacrifice.

    Why is there never any acknowledgement that owning your own home in retirement is not FREE board? Renters have a distinct advantage over householders; yes they pay rent but they do not pay rates, building maintenance, water, they do not have to replace aged appliances such as cookers when they break down, if the place they rent is furnished, they do not have to pay for repairs or replacements and this includes things like washing machines, dishwashers, dryers where these were supplied, strata fees, building insurance and a host of other outgoings that homeowners have to pay. All this will add up to tens of thousands of dollars that people would have to find whether they are on a pension or not.

    Many homeowners do not have things that great as some would think and it is time to acknowledge that homeowners may struggle too.
    Paddington
    15th Apr 2019
    8:30pm
    When you own your own home you have security and privacy. No one tells you what to do or they are coming for an inspection. If the only asset you have in retirement is your own home then you are lucky. I know some who do not have their own home and I know I am luckier than they are.
    Usually people renting have nothing, at least a home owner has a big asset even if it is a humble abode.
    Rents are high as well. Home owners have rates, insurance, repairs, etc but still better off than a non home owner. People without their own home are more likely to become homeless than home owners.
    Peace of mind comes with owning your own home.
    GeorgeM
    15th Apr 2019
    11:40pm
    Quite right, KSS, I also have serious objection to such statements as the one you have quoted, as well as several others in this article. Not sure why this 2018 article is being reported here merely because The Conversation wants to re-publish it. It is clearly spruiking actions to help renters while dumping homeowners - as if they didn't deserve to be in that position after all their sacrifices. Also, to promote the Pension Loans Scheme of this Govt, and possibly other attempts to get the Govt to access your home equity.

    Paddington, while your comments are valid, KSS is right to point out the potshots in this article ignoring the massive sacrifices many homeowners made, while overlooking the major costs many homeowners incur - severely underestimated at 5% of income - I disagree with that especially once you add in all the costs (add in garden maintenance) as KSS has noted.
    Anonymous
    16th Apr 2019
    11:59am
    Where did this absurd figure of $23,000 a year come from. I worked out owning my home in retirement is actually VERY expensive. Add up the forfeited pension, forfeited rent assistance, rates, insurance, maintenance, etc. and I'd be way better off renting. There's no way it makes me $23,000 a year better off!

    But knowing Grattan and the way pollies operate, I'm betting this is a precursor to including the family home in the assets test. Grattan have been lobbying for it. This is just part of the lobbying - building a case. And why should they care if the case is fictional, as long as it serves their purpose?
    Anonymous
    18th Apr 2019
    10:27am
    OAW - your house is already included in the asset test, it counts for about $203'000, the amount a non home owner is allowed in other assets against the home owner. My unit is not worth all that much more, pay about $100 a week in council rates and body corp; and I do not get rent assistance. People keep on saying that your property is excluded from the assets test. If you live in a place that is worth something that might be right, but for people like us on the lower level.
    Anonymous
    18th Apr 2019
    2:24pm
    You are right, Cowboy Jim, but Grattan is lobbying for the house to be included at its full value or its value over a very low threshold.
    older&wiser
    15th Apr 2019
    1:24pm
    Heard this conversation only last week....
    Couple in their early 30's, no children, and not having any. Rent, constantly travelling overseas and buying new cars, dining out, etc. Their reason for not buying a house? Wife (only child, born when mother was in 40's, father much older and now deceased) - jut waiting for mum's (considerable) inheritance!! Hope she lives to 110!
    With rolling generations, many may not be able to afford to buy a house - but will be in line to inherit from parents who have.
    BAT
    15th Apr 2019
    6:24pm
    I don't believe in inheritances. Dad worked hard to support his wife (stay at home mum)& his 6 children. We had a good life ,respectful,we all had a good work ethic & not relying on Government hand outs. Work hard to obtain your house etc don't rely on mummy & daddy
    Inheritances cause so much family greed.
    Blinky
    15th Apr 2019
    2:02pm
    I dont agree w the Grattan Institute. Young Aussies today have plenty of time to save n buy a home and to build a good supperannuation. Us, baby-boomers didnt have that luxury.
    Let's face it, if you are a born n bred Oz or have worked hete x 30 or more years n cannot afford your own home, humble as it might be, there is something wrong with you.
    If u havent worked hard or you have lived n worked in Oz for under 20 years or so, then that might be the reason why you r struggling in your old age.
    Pensioners who own their own home do so cause they worked hard, paid taxes n probably never depended on Govt handouts until they reached retirement age n get a pension which should not be deemed a handout, but a well-earned reward x all those years of hard work.
    ALL POLLIES get a pension, so should ALL AUSSIES.
    Housing affordability starts with you!
    TREBOR
    15th Apr 2019
    2:16pm
    Don't generalise on the reasons people don't own their home in retirement, Blinky. There are more reasons for that than there are people....
    GeorgeM
    15th Apr 2019
    11:43pm
    Agree, TREBOR, other than that one comment, overall Blinky is spot on.
    Rae
    15th Apr 2019
    4:43pm
    A lot of aged pensioners simply can't afford to live in the home they retired in. By selling they can buy elsewhere at a cheaper price and have some funds for essentials and maintenance etc. A lot never worked a budget, saved or organised finances. They must be hurting with current costs being so expensive now.

    My insurances alone come to 25% of an aged pension. Rates and water around 15%.

    Add electricity, maintenance including needing new roofs or balconies at tens of thousands of dollars.
    Paddington
    15th Apr 2019
    8:36pm
    Insurance 25% of the pension? Our home and contents insurance is only $50 a month. Rates are about $1200 a year. Water is too dear in my opinion at $28 per week. Take care of minor repairs as you go to prevent major costs.
    Rae
    16th Apr 2019
    6:29am
    My rates are $2200, Insurance $1400, Health insurance is $2400. + car insurance $600, Water is $1100.

    I added the other two insurances as many here say they do keep up healthy funds.

    Not all housing costs but still would be a hard if relying on only a single aged pension.
    Anonymous
    16th Apr 2019
    12:10pm
    Wow. I'm moving! My rates are a whopping $3600 per year. Insurance $1400 per annum. Water $300 per annum. Add the fact that owning a home disqualifies me from a part pension, and it's a damned expensive asset even ignoring maintenance costs. After struggling for 30 years to pay off a mortgage, and making endless sacrifices.. I resent Grattan's BS. Most Australians COULD HAVE done what I did. Many chose to spend on holidays, entertainment, new cars, etc. instead. Why should homeowners now be demonised?

    As for younger Aussies, any claim that homes are less affordable now than in the past is very questionable. I can buy a nice 3-bedroom/1 bath older style home that's way better than anything I had early in my married life for around $400,000. With interest rates so amazingly low, that's VERY affordable for most families.

    Grattan didn't bother to mention that my generation didn't get adult wages until age 21; had far less educational opportunity, as vast numbers didn't even get to finish high school; didn't get first home buyer grants, family tax benefits, etc.; didn't get assistance with child care costs; and paid up to 18%+ interest rates.

    My daughter applied for a loan to buy a solid, well-kept 30-year-old home that was highly affordable. Bank manager and agent both tried to convince her she should buy a new home at 1.5 times the price, as it 'befitted her professional status'. Had she taken that advice - as 90% of her colleagues did - she would be homeless now, after suffering some misfortune.
    Mary
    16th Apr 2019
    5:34pm
    So if you are able to work hard, have to work multiple jobs at the same time to pay for your home and then pay for that house with your AFTER tax dollars. Why would any govt penalise that? I have paid down for my house so far, $400000 of after tax earnings and while doing that paid 25% av payg tax ($100000 to do it) To include my home as an asset, one that I have earned with hard work is a complete joke. Both govts want to tax me again with asset tests and death duties on my home paid with my after tax dollars. If they do that then fine. If it is an asset then they can let me deduct my all of my costs in acquiring and maintaining the asset over the years. Stamp duty, mortgage interest payments, maintenance, improvements, insurance, water service and council costs as an asset/tax deduction against that asset over 26 years. I know that a lot of you will think that I am lucky and rich. I am not. I still have a mortgage, tho its small. I am a battler that struggled hard to put a roof over our heads with no overseas holidays and no new cars, just surviving bill to bill. I find it offensive both govts want to change the goal posts all the time and squeeze more from self funded low earning home owner retirees.
    Rae
    17th Apr 2019
    8:41am
    Exactly Mary. The economists and politicians have no idea of the real world for real people. How could they? They have never struggled like the 60% at the bottom.
    Anonymous
    18th Apr 2019
    2:20pm
    I agree Mary, but it's not just governments. It's a large number of greedy and selfish people who aren't affected by certain policies that unfairly rob some retirees, and will support all policies that only hurt others.

    Nothing will improve until retirees stop being selfish and unite to demand fairness to all.
    musicveg
    21st Apr 2019
    2:27am
    I am already a renter and cannot see myself ever affording a home, maybe a tiny house.