Declining home ownership threatens retirement system

The rate of home ownership is declining so fast that it threatens to undermine the system.

Declining home ownership threatens retirement system

According to a new report commissioned by the Australian Institute of Superannuation Trustees (AIST), the rate of home ownership in Australia is declining so fast that it threatens to undermine the superannuation system.

The report, No Place Like Home: The Impact of Declining Home Ownership on Retirement, was commissioned by the AIST and written by economist Saul Eslake.

The rate of home ownership in Australia has declined to around 58 per cent after a peak of 73 per cent in the mid-1960s. More than half of this decline has occurred since 2001. Furthermore, the number of home owners who own their homes outright declined from 61.7 per cent in 1996 to 47.9 per cent in 2011.

The report suggests that a threat to superannuation exists due to the fact that the system was built around the assumption that the "overwhelming majority" of retirees would not have housing costs in retirement.

According to the report: ‘Not only do the emerging trends in Australia’s housing market spell trouble for those who will be entering retirement over the next three or four decades: they also spell trouble for Australia’s public finances and for the governments who will preside over them.’

‘These prospects should encourage Australia’s current generation of political leaders to give more thought to what can and should be done to ameliorate or reverse the long-term decline in home ownership rates among people currently aged between their mid-20s and their mid-50s.’

The report recommends that the Government should abolish or modify negative gearing and the capital gains tax discount. It also recommends tightening the rules for foreign investors; state governments to exempt pensioners from stamp duty when downsizing, and for regulators to force the reduction in growth of lending to property investors.

Read more at theguardian.com

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    COMMENTS

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    Red Robin
    23rd Mar 2017
    11:30am
    I agree with this report. Especially the point on the downsizing of the home for retired people. Charging retirees stamp duty when they downsize is virtually cutting into their retirement funds and so shortening the period before they are not self funded and reliant on the government. You think twice about selling the family home when you cannot make a substantial cash gain to warrant the move, thus clogging the flow of the market.

    Property investment and negative gearing should be limited to one property per person, and if a person goes to more then one full tax should apply. This give you a chance to have a diverse range of investment, i.e.: 1 property, shares and some cash investment - without only a handful of people having the lions share...
    Tinker
    23rd Mar 2017
    11:38am
    This article clearly sets to the difficulty that will be faced by a generation of renters.I took my sons situation into account, extrapolated his superannuation balance over his time to retirement and found that rent to be paid over 20 years of retirement was over 100% more than he would have in superannuation. This means that even if he is eligible for a full age pension he is well below the poverty line in terms of money left for living expenses.
    Of course he can move out of Sydney, he will have to, not easy when you have family commitments.
    Future governments will be left with this problem and some solid thinking ends to be done. We need a system to get these people into housing where rental payments contribute toward
    Tinker
    23rd Mar 2017
    11:51am
    (pushed wrong button) purchasing the dwelling in the longer term or we present retirees need to conserve our spending so that we can help the next generation.
    Rosret
    23rd Mar 2017
    12:29pm
    Tinker I understand perfectly, however we need to keep spending to keep the businesses afloat because our younger ones are putting all their money into a mortgage.
    The Government(all parties) were hoping to do away with the aged pension but I just can't see it happening if we keep going the way we are.
    floss
    23rd Mar 2017
    12:02pm
    Superannuation was on the nose after the asset change this would kill it completely what a mess we are in.
    mike
    23rd Mar 2017
    12:17pm
    Well what do you expect. Every time the government needs money it attacks the elderly, the sick, the pensioners and the disabled, whilst looking after big business and filling their own back pockets. I notice my health insurance just went up over $500 pa, whilst at the same time the gov rebate went down 10%. A double whammy. The gov rebate was to encourage the elderly to take out health insurance and not be a drain on the public purse, but that was long term, NOW, its all about short term gains. paying for polititions perks and filling their back pockets. Take Hockey, called disabled rorters, whilst he himself was rorting the travel allowance to the tune of $288 per night, and not just himself, but his political cronies as well, and used it to pay of a mansion in Canberra that he openly boasted he obtained through FRAUD. Our children are trying to buy in Sydney, but find they can no longer afford a home mainly because of Chinese investors pushing the price up, and of course more money going into polititions back pockets
    Rosret
    23rd Mar 2017
    1:01pm
    It isn't just the Chinese investors. The Chinese actually have their own loop. They build the multi-story apartments, they provide finance for the apartments to their Chinese buyers and we have just given up one street block and in return they don't have to commit to any of the infrastructure costs of turning a medium density area into a high density area.
    We are losing Australia to China and there isn't much we can do about it except look after our own. Which we are not doing.
    I have been on the house hunting trail with my son too. There is a Real Estate "game" I would like to see stopped.
    The seller offers a price range. What they actually mean is anything above the higher price in the range. Then I am told anyone who bids is not privy to anyone else's offer. So if you want to win the bid you need to go above any logical amount with no idea how much you have bid above the next lowest bid.
    Its inflationary and its wrong. I don't like auctions but at least all prices are disclosed and all building reports are done before it goes to auction at the seller's expense.
    We could also demand that houses and apartments must be big enough for a family. The smaller councils allow the apartments to be the smaller they all become. - and they still want top dollar.
    Rosret
    23rd Mar 2017
    12:25pm
    Not only has the family home become unaffordable for our young so to is the portion of their salary needed to pay off a home and the length of time it takes to pay off a home.

    There used to be a 3 year rule of thumb. You should not borrow anymore than 3 x the salary of the single highest earner of the partnership. So $50K p.a. would afford you a $150k loan.
    Interest rates were higher however most people were encouraged to pay off their loans in 14 years and were considered foolish if they paid it off in 30 years.
    That meant by our 40s extra money could be tossed into the private superfund or some other form of investment.
    If our children are going to be putting everything into A home then all other businesses will suffer.
    Farside
    23rd Mar 2017
    1:23pm
    It's time to introduce property taxes and cadastral incomes similar to those in Belgium and other countries. We must learn to accept that home ownership is unlikely to be available to all and that most people will require affordable rental housing with long term tenancy of a dwelling and stronger tenancy rights .

    Rents based upon cadastral incomes will enable renters to not only be able to spend more, thus helping the general economy, but also to contribute over and above their guaranteed superannuation contributions to fund retirements.

    Owners will be subject to annual property taxes that reflect the value of the property with discounts and obligations available for particular circumstances. See http://www.immoweb.be/en/build-rebuild/article/property-tax.htm?mycurrent_section=build&artid=2336 if you would like to learn a little more how this could work.
    Rosret
    23rd Mar 2017
    2:13pm
    Farside we aren't living in Belgium. We have 3 people per kilometre. We have the space, the resources and the means to provide a house and land for everyone. How did this all go belly up in a 20 year span? Increased immigration, decreased infrastructure planning and lack of decentralisation coupled with a strategic political plan to just win elections rather than forward plan for a new emerging nation.
    However - they are getting the message now!
    Old Geezer
    23rd Mar 2017
    3:06pm
    We already have a property tax. It is called land tax and is levied on the value of the property.
    Farside
    23rd Mar 2017
    3:38pm
    @Rosret - thanks for pointing out the obvious. No argument we are not in Belgium, nor do I disagree with your stated consequences of decreased infrastructure and failure to decentralise, so well done. That said, your contention we have the space and means to provide a home for everyone is fantasy. The population density may be different however the process can still be applied, and for what it is worth the vast majority of Australians live in urban areas. Different property density does not affect the application of the concept.

    It is worth remembering Hugh Mackay's observation that the Australian population has increased five-fold in the past 100 years yet the number of households in Australia has increased ten-fold. In other words the number of households has grown at twice the rate of the population, which simply means households are getting smaller. More than 50% of households have two people or fewer. This is a bigger stimulus of demand than immigration (and it would not surprise me if also of foreign investment).

    @OG, the Belgian property tax is more than just a one size fits all land tax we see applied here at state level. It has a sophisticated set of incentives and deductions and reflects additions from all levels of rating jurisdictions (e.g. state, provincial and council) and applies to all property owners unlike in Australia.
    Old Geezer
    23rd Mar 2017
    4:43pm
    The NSW government has been talking about levying a land tax on all properties and getting rid of stamp duty when you buy a property for ages now. Stamp duty creates a revenue stream that has ups and downs and is very hard to budget for whereas an annual land tax on all land would give a more even source of revenue. Recently this has also been talked about at the federal level. It would not surprise me to see changes in both the federal and state budgets regarding land tax and stamp duty.
    Farside
    23rd Mar 2017
    5:51pm
    From an economic perspective land tax is arguably the most effective and efficient of taxes, so migrating to it and consigning stamp duty, payroll tax etc to history would be a good thing.
    Rae
    24th Mar 2017
    8:07am
    If the NSW government plan a land tax on all property then selling the Lands Title Office appears either very stupid or designed to allow corruption.
    Hawkeye
    25th Mar 2017
    12:24am
    As far as I can see State Gov "Stamp Duties" and "Land Taxes" are illegal, because they are part of Howard's "raft of State taxes' which were to disappear (as contractual obligations under the 1999 GST Agreement) when the States were handed the GST in 2000.
    Charlie
    23rd Mar 2017
    1:52pm
    I suppose an increase in the age pension would be out of the question.

    This is for when the home ownership plans fail, and the super plan fails to generate enough money to live on.
    Farside
    23rd Mar 2017
    1:55pm
    @Charlie – asked and answered. Social security and support is about one-third of the national budget and aged pensions are about half of that. Given four in five are likely to receive a full or part pension for the next 40 years there is little prospect of it changing for the better without starting over and building a model for the 21st century.
    Gra
    23rd Mar 2017
    3:02pm
    Stop foreigners buying up housing here and watch the prices fall to affordable levels for Australian home buyers.
    GeorgeM
    28th Mar 2017
    1:05pm
    Absolutely, agree, Gra - in particular the overseas Chinese who have distorted the market badly in highly desirable cities, not only Sydney, but also Vancouver, etc.

    All the report recommendations are good "...that the Government should abolish or modify negative gearing and the capital gains tax discount. It also recommends tightening the rules for foreign investors; state governments to exempt pensioners from stamp duty when downsizing, and for regulators to force the reduction in growth of lending to property investors". The big question is - WILL THE GOVT (LIBERAL or LIBERAL) listen to this sensible report?
    Eddy
    23rd Mar 2017
    10:36pm
    We had the answer to housing affordability but successive governments has given it away to the private sector. In the 1940s 50s and 60s the State Housing Commissions, with the help of Commonwealth money, developed land and build basic houses at an affordable price. These houses are still in use 60-70 years later (renovations notwithstanding). I think most respondents to this forum benefitted from the SHC, they kept prices down and were a check on the private sector. When governments closed the SHC house prices went through the roof until now they are getting unaffordable to most potential buyers. It was the same with the banks, when the government owned the Commonwealth Bank the private banks were profitable but kept in check. When the CBA was sold all checks and balances went with it and now the banks are making record profits. Once we were paid interest on our savings accounts, now we have to pay fees to the banks for the privilege of them using our money.
    Hawkeye
    25th Mar 2017
    12:37am
    Same thing happens whenever the lying ba...rds privatise anything.

    They sling the BS that it will create competition to drive prices down.
    Anyone know of any examples where that happened?

    They leave out the bit where the new private owners have a vested interest in obtaining the highest prices that they possibly can, in order to raise profits for their shareholders. And it is actually illegal for them to do otherwise.