Most people’s savings are primarily held in the form of equity in the family home, and as residential property values climb, their wealth accumulates – on paper at least. But once the family have grown up, and retirement beckons, the thought of unlocking all that valuable equity to help fund your lifestyle, your future health needs and even to help adult children buy their own home is an attractive prospect.
An ageing family home and garden requires regular repairs and upkeep, and the need for ongoing maintenance can become cumbersome. At this stage of your life, a newer, lower maintenance home in a resort style community with shared facilities may offer a better retirement lifestyle.
However, downsizing your home does not always stack up financially when you consider the cost of buying a suitable replacement property, and the transaction costs involved. Selling the family home and moving to a newer residential apartment or town house in the same area may not free up enough home equity to make the move worthwhile.
The alternative is to consider a retirement village, or other purpose built “over 50’s” lifestyle housing which is generally available at a more affordable entry price point compared to surrounding residential property. It’s been estimated that a two bedroom retirement unit costs about 67% of the cost compared to a standard residential two bedroom unit in the same postcode.
Research shows that people who live in retirement communities are healthier more active and independent compared to others in their age group. They require fewer doctor and hospital visits, and the need to move to age care is delayed by more than 6 years. Being less socially isolated, they also report feeling much happier.
A major issue is ensuring that suitable new housing stock is available, in the right locations, at the right price point, for prospective downsizers. A decade ago, a “seachange” move out of the city, to a cheaper coastal or rural location and an early retirement was the norm. But since the Global Financial Crisis, more people now prefer to work for as long as they can, and aim to retire in the city closer to services and family.
The Productivity Commission has researched the location and availability of purpose built “over 50’s” housing and concluded that there is not enough supply in the areas of highest demand. They have pointed to both state and local planning decisions creating barriers to the expansion of age-specific housing.
Even when you find a new home and the changeover price equation works out, the next thing to consider is whether releasing the equity in your home as a lump sum will affect your pension eligibility or be caught by superannuation rules.
The combination of the tax treatment of the family home as the favoured method of wealth accumulation, and the impact of transaction costs, pension asset test and superannuation rules coupled with the lack of availability of suitable alternative housing means that many older Australians are staying in the family home for longer by default. And this is having knock-on effects in the whole residential property market, reducing the overall housing stock available for sale.
Changes are expected to be announced in the upcoming Federal Budget to recognise these factors and make it easier for people to downsize their family home. The Federal Government is reportedly considering changes to reduce stamp duty when downsizing; and to reduce the impact of the release of equity as a lump sum after the sale of the family home on both the age pension asset test and on superannuation rules.
Watch this space – we’ll keep you posted on any updates.
